Sarah Carey’s column in today’s Irish Times does a good job of introducing the public to the Department of Finance’s thinking about the banks as articulated in Slide 11 of the slides from the Minister’s presentation last week. However, I think it will take a lot more than a few op-ed columns to slay the beast that is the Iceland! talking point.
As an aside, for those who can’t get enough of the Iceland!ic banking crisis, here are two reports co-authored by eminent economists written prior to the crisis endorsing Iceland’s fabulous banks. Here‘s one from 2006 co-authored by Columbia University’s Rick Mishkin, a former Fed Governor (Best section – “Could Bank Refinancing Be a Problem?”). And here‘s one from 2007 co-authored by Richard Portes of the London Business School. (Best section – “The banks:successful and resilient”.)
As another aside, I note that some people were poking fun at the slides. However, it is very unusual for a politician to usual visual aids like this to illustrate their arguments and, based on my observation of his talk at the McGill Summer School, Minister Lenihan uses this material very effectively. So politicians using slides is a good thing: Don’t encourage those who’d recommend the minister keep his head down and deliver a monologue without charts and tables!
177 replies on “Slide 11”
Yes. Many people, especially on here, have thought for a long time that having appeared to have excluded nationalisation, we have in fact been going about it by the slowest, most painful, most expensive route we can find.
What’s that old joke? Q: how do you buy shares in a small bank in Ireland (Iceland!)? A: buy shares in a big one and wait!
Excellent stuff. Anybody reading that will have to consider what all the fuss was about and why we just didn’t do the necessary at the time rather than waiting for the inevitable.
One query that I have is the conversion of preference shares. You/Karl might have an opinion on this.
“Our existing preference shares will convert to ordinary shares, and thus confer ownership upon us.”
As 99% of the cash raised by both banks was immediately parked in the Share Premium Account, which is Core Tier 1, conversion of the remaining €35m (nominal value) will have almost no effect on Core Tier 1. That is, it won’t improve regulatory capital.
It certainly will relieve the banks of having to pay the preference dividend and of course the need to pay back the prefs at a later date. It will also do away with our Warrant over 25% of the equity. And, it will relieve the banks of having to pay a 25% penalty on redemption if the prefs are not redeemed prior to the fifth anniversary.
It will not however improve the Core Tier 1 position of either bank one whit.
Over five years we would lose €2.8bn in dividend (interest) forgone.
We would also lose €1.75bn in foregone penalty and whatever the value of the Warrants would be in five years time.
But the truly shocking thing is we would then have to pump in another (what?) €5bn cash to improve Core Tier 1. And the banks have yet to address losses on residential mortgages, credit cards, car loans, and of course all the “small” development loans at won’t find their a into NAMA.
Then there is Anglo and Irish Nationwide.
I think were stuffed. I’m not sure the State can carry the burden.
Can somebody clarify for me the status of Iceland’s banks? Brian Lenihan claims they’ve been natioanlised. Morgan Kelly in a recent article stated that Kaupthing bank had been turned over to it’s creditors and Wikipedia has said that Iceland’s other main banks have been put into administration by the authorities there. Is Lenihan being entirely honest here?
A journalist from Morgunblaðið, the Icelandic paper of record, rang to ask if there was interest in Ireland in recent events in Iceland. I pointed them to “slide 11″, which may make an appearance in their next edition.
I will be in Reykjavík for the Icesave referendum (assuming it goes ahead) this Saturday.
It is remarkable how little the press pick up on the major points made by contributors to this site that have repeatedly pointed out the misleading arguments put forward by the Minister for Finance. But then, I suspect the press (nearly to a man) supports the government’s rotten banking policy. What else could explain their failure to pick up on IMF objections to NAMA for so long, for example?
The glorification of the Minister for Finance has ensured his propaganda has remained largely unchallenged.
Looking forward to hearing your thoughts on how things are in Iceland!
@Ciaran Daly -“I suspect the press (nearly to a man) supports the government’s rotten banking policy. What else could explain their failure to pick up on IMF objections to NAMA for so long, for example?”
Er, not this man.
I am working on that IMF story even as we speak. Watch this space.
As for ‘what else could explain’…… er, most of them don’t understand/are too lazy/too thick/etc. ?? Not Sarah obviosly!
I’ve pointed the newspaper to this wonderful blog. http://www.irisheconomy.ie‘s thoughts on Iceland! may feature in Iceland!’s national newspaper this Friday.
I will be sure to bring you back a copy.
Thanks Karl. I know there is a lot going on and many different points to be made but I thought to kick off a few banking columns, that was a useful starting point.
I think Gene Kerrigan’s complaint (while a teency bit harsh) answers Ciaran’s point – the journos (myself included) are really struggling to understand what’s going on in this crisis – it is easier to write about George Lee than the difference between preference and ordinary shares……The shortage of economist/banking journalists is a genuine problem. It’s not a question of supporting the government’s policy, but the PRs are so confident at putting it across that its difficult to argue when you don’t really understand the issues in the first place. I rely on the patience of the contributors here and industry insiders to give me some time to share their perspective.
And Hey! How come I didn’t get the trip to Iceland?! Gotta drop into the office more often 😉 Have good one Elaine 🙂 Now if the Maldives would have a referendum……
Great work Sarah and a very good article.
While pieces on George Lee may be easier to write, they are far less important to the future of the country.
The banking crisis and how we handle it, on the other hand will pretty much define Ireland’s future for much of the next generation.
“Not Sarah obviosly!”
And obviously Sarah is not a man.
@Sarah: the point at the end of the article about the enormous transaction costs associated with transferring bad loans at arms length, rather than within the government sector (as would be the case under nationalisation) is one that is not made sufficiently frequently. It was always one of the best arguments for nationalisation in my view.
@Elaine: just reading the White Book by Einar Már Guðmundsson, an absolutely terrific, sustained polemic about the greed, arrogance and stupidity of bankers and those supposed to regulate them. He’ll give you a few quotable quotes I’d say.
@Sarah nice article today. Am a regular visitor to Iceland (esp for Sigur Ros concerts!) and decided to bring forward this year’s trip for the referendum count, some of my friends are very involved in the various civic society movements.
@Dreaded_Estate “The banking crisis and how we handle it, on the other hand will pretty much define Ireland’s future for much of the next generation.” Thats for sure!
@Kevin O’Rourke I’ve read some of Einar Már Guðmundsson’s poetry but not his latest book, thanks for the tip.
“They were insolvent in September 2008 when we introduced the guarantee, were insolvent when Nama was first proposed, and will remain insolvent after the loans are transferred. The hole is just too big.”
“I suspect that’s why the Minister’s slide said “100% nationalisation” rather than simply “nationalisation”.”
“We’re over-paying for the shares, and the tortuously slow and expensive file-by-file loan valuation process could have been avoided.”
Erm, no. If you intend to refloat the banks, the same tortuous process has to be gone through. Now, if you plan to liquidise all the banks mix the bits up and float off different bits, I think you are okay, but you can’t do a quickie nationalisation and refloat with clean assets. That is market abuse and is not permitted.
The reason Anglo is going though the poxy NAMA process is that the government, in its infinite wisdom, seems to think it can refloat the elephant, presumably so effete sons of former ministers will have somewhere to work, now that Aer Lingus is gone.
However much people on here like nationalisation (and I don’t, I want to see a resolution process that will break up and reconstitute the banks, insurance companies, life companies, treasury operations, payment processors, clearing houses, FX and hedging operations – some will be privatised, some will stay as state utility companies), the EU has set down rules that need to be followed. Thinking you can nationalise the banking system in one part of the EU and do with it as you like is no longer valid. Ireland is part of the European banking system now and its banks compete, in Ireland and abroad, with banks in the rest of Europe.
PS Sorry, meant to say – still a great article, though!
Fantastic article. The banker/broker Jesuits do all they can to confuse the debate so the more the truth is stated the better.
If it is not cut loose Anglo will be the downfall of the Irish establishment – and of Ireland. It is time to make a speedy and total retreat. If we don’t we face a massive financial defeat. This excellent article outlines the stark facts to our rulers. They must listen.
“..Four billion euro of our money has already gone into this financial carcass. That money is gone; we will never see it again…
…Anglo is our financial Stalingrad. We should close it down tomorrow, deal with the creditors and get the hell out. Ireland can’t afford to spend another cent on it.”
Good, and relevant, work. Keep it up (-;
Yes – transaction costs. Remove the spin & the blinds.
The Minister’s ability, Ciceronian dexterity, or apparent genuine inclinations are not in question.
The appropriatness of his decision making on the banking morass, the quality of his policy decisions, his apparent unwillingness to relate the facts as they are to the citizens of this republic, and the unwillingness to spell out the implications of these decisions and policies for Joe and Joan citizen and the future generation are open to serious questioning. The citizenry, as distinct from the global capital markets and the craven local kleptocracy, deserves better.
It took me a while to get this point about the valuations. I had been thinking – sure it doesn’t matter if you nationalise – you still have to value all the securities on the loans. It’s the only way of putting a number on the shortfall. However the point seems to be that if you nationalise, split them into the good and bad banks, and transfer the toxic assets to the bad, then the valuation is irrelevant because you own both. You are just re-filing rather than purchasing.
Also, not valuing has the virtue of speed and finally, there is the point that today’s value is irrelevant (Dermot Desmond argued this in in his input last year). The real questions are a) are the repayments being made b) how can we manage the security best to extract value from it (ie flog it now or hold it) and c) what might the future value be.
The others might have more to add on that.
Who’d have thought familiarity with Iceland would come in so handy!
Good article. Welcome to the dark side..
However the point seems to be that if you nationalise, split them into the good and bad banks, and transfer the toxic assets to the bad, then the valuation is irrelevant because you own both. You are just re-filing rather than purchasing.
In theory, in theory Sarah. It might buy us another few years, before the complexity of our assets, valuations and general wealth-definition(s) creep up with us again. I’ll give you a basic example, to suggest what I mean. A friend of mine, borrowed twice between 2002 and 2007 to buy cars. Instead of buying the cars, he threw the money on the Irish stock exchange. What we have seen in the past year, is the Iseq has collapsed to one third of its value at the peak. He waded in deep with Smart Telecom too. I mean, how much of the Iseq was pumped up, and backed with nothing except loans? I mean, the Iseq has been hammered, but the full amount of those 2 no. personal loans are still there, and still have to be paid off. What are they backed up by? Nothing.
Another side point, the guys at Barclays wealth management etc, say, the Irish were silly. They thought that investing in a company two miles down the road, was somehow safer than investing in a company as far away as Toyko, or Taiwan. But is it? I reference Liam Carroll as a case in point – the biggest single investor in the Iseq, as of 2008/09, the crash. BOH.
It is a pity, Ireland didn’t consider something like ‘swap contracts’ to diversify its risk in it’s brickie pyramid scheme during the boom. You can click on the link at this blog to Robert Merton’s video lecture at MIT, where he discusses the benefits of financial derivatives on the one hand, and the dangers in giving out plain, vanilla mortgages on the other. The point being, people are of some impression today, that non-derivative products such as mortgages aren’t so bad – that it was derivatives that was all responsible. Merton challenges that thesis in his lecture.
I’m sorry, but this article just doesn’t add up. It is not difficult to look back at what people were saying last year about nationalisation. It’s all on the internet, for Godness sake. The obvious place to look is at the article that the 20 academics signed that was published by your own paper last April. A few of those academics write on this blog.
“Nationalising banks is the best option” The Irish Times, 17 April 2009
The dimensions of the debate are there, in black and white, for everyone to see.
In that article, the 20 academics called for ” full-blooded nationalisation of the banks.” Thay said that “nationalisation has become the best option open to the Government.” They talk about a ” voucher-style reprivatisation of the banks” and creating banks that can be ” privatised.. as soon as possible.” They don’t see a problem in “removing the stock market listing” because they argue that “the experience of recent years is one that would have to cast doubt on the ability of markets to effectively monitor financial institutions.” They wanted the banks to be ” semi-State operations”.
So it is very clear. The 20 academics wanted 100 per cent nationalisation. Some of them still do.
Imporantly, they said the following in the 6th paragraph:
“In introducing its proposals for the National Asset Management Agency (Nama), Government Ministers and Peter Bacon, the consultant who recommended this plan to the Government, have stressed that they see their current plan as likely to produce a superior outcome to nationalisation (though they concede that majority State ownership may be required).”
So they acknowledge that the Government did not rule out “majority State ownership.” Majority State ownership was obviously not enough for the 20 academics, since otherwise they would have had no reason to argue with the Government. They wanted 100 per cent nationalisation.
The only sensible conclusion is that, whatever the spin nowadays, the debate last April was between the Government, on one side, arguing for NAMA, with increased State ownership in banks as a result of NAMA, and possible majority State ownership not ruled out. On the other side were the 20 academics arguing for 100 percent nationalisation. The only way to achieve 100 per cent nationalisation would have been to take over the bank by legal means as was done in Anglo’s case.
Here’s the thing, Sarah. Your article, if I read it correctly, implies that the debate was between the Government that ruled out majority State ownership of the banks, on one side, and 20 academics who argued for either majority State ownership or 100 per cent on the other side. If that is what you are saying, the paper of record clearly shows you are wrong.
Brian O Hanlon
Derivatives are like badly run banks on methamphetamine and crack. Do you never read the other contributions to these posts? If you lose you lose 100%. If you win, you hope the other party is still liquid and has not lost too many bets.
You betray the slightest knowledge of economics, but it will be to the credit of this blog if your meanderings become more economically literate and relevant over the next decades of the Depression.
Good thing and keep it up. Sadly the MSM is for sale. Eventually it will be purged and there will be massive job losses. Too late for those few journos with integrity. The good news is that there will be a need for better politicians and now that they are so well paid there may be some competition for the jobs. Ever though of it? Form a new party as the others are tarred with boom and bust.
100% nationalization in April would have been the better option.
The difference between 75%, 90% or temporary 100% nationalization has always minimal and mostly in the government’s mind.
If the government had taken the economists advise 11 months ago, we wouldn’t have had a zombie like banking system since then, it would have cheaper and it would have been fairer and less costly for the taxpayer.
you need to reread the article rather than selectivly quote therefrom. Like this set of sentences
“We believe that the correct action to take now is nationalisation of the banking system, or at least that part of it that is of systemic importance.
We do not make this recommendation from any ideological position. In normal circumstances, none of us would recommend a nationalised banking system. However, these are far from normal times and we believe that in the current circumstances, nationalisation has become the best option open to the Government.
Furthermore, we explicitly recommend nationalisation only as a temporary measure. Once cleaned up, recapitalised, reorganised with new managerial structures, and potentially rebranded, we recommend that the banks be returned to private ownership.
In introducing its proposals for the National Asset Management Agency (Nama), Government Ministers and Peter Bacon, the consultant who recommended this plan to the Government, have stressed that they see their current plan as likely to produce a superior outcome to nationalisation (though they concede that majority State ownership may be required).
We disagree strongly. We see nationalisation as being the inevitable consequence of a required recapitalisation of the banks done on terms that are fair for the taxpayer.”
So, rather than WANT we see it as REQUIRED. WANT implies a positive desire, which as we state we dont have. REQUIRED implies a normative prediction.
Dont muddy the waters.
oh for an edit function
As you seem to see us as raging commies, why, pray tell, do you think we so eagerly seek the embrace of the state? Do tell…
“had been thinking – sure it doesn’t matter if you nationalise – you still have to value all the securities on the loans. It’s the only way of putting a number on the shortfall. However the point seems to be that if you nationalise, split them into the good and bad banks, and transfer the toxic assets to the bad, then the valuation is irrelevant because you own both. You are just re-filing rather than purchasing. ”
And that would indeed be the case if the banks themselves undertook such a split (as the remaining Swedish private banks did following the nationalisation of Nordbanken and Gota Bank), but you cannot equate the actions of private companies with those of wholly owned state companies. In this case, full nationalisation would be an impediment to resolution.
If, however, the state, as shareholder in the banks (or even just as a state), put forward a scheme for setting up a bad bank and looked for shareholder/bondholder approval and recapitalisation, then provided it was prepared to offer similar terms to all banks, I don’t see that would be a problem.
Whether the banks are nationalised or not, bunging money into them (which would be the effect of the enforced bond loss that is a private bad bank) can only be done on commercial terms and where there is a reasonable prospect for survival.
But we will see with Anglo. The plan for Anglo is, from what it looks like at the moment, NAMA plus the bad bank split…
The Minister has all along said (i.e., for the past year) that majority ownership was possible (or peculiarly stronger “not inevitable”) and has always said he is trying hard to avoid 100% nationalisation but that if it has to be done then it will be done. He has also always said that we would be taking a greater share in the banks if the loans in better shape than expected.
I have quoted the Minister on those specific points numerous times and I won’t take the time to do it again.
I would refer to the time I fell out (cyber-style) with Mr. Gurdgiev.
Mr. Gurdgieve acknowledged back then that NAMA could lead to 90% nationalisation. I agreed. That has been the case all along.
It has also been the case that the IMF advice which we have followed said NAMA and nationalisation are two sides of the one coin.
Therefore, I think the below quoted passages are grossly unfair to the Minister, as they suggest that this position is something which the Minister is fitting up in retrospect whereas the Minister has been crystal clear on these points all along.
It is clear that SC is familiar with the Minister’s position, as she summarises parts of it so succinctly, leading one to wonder if her mis-characterisation of it (as the Government pretending it was right) is willful.
“I suspect that’s why the Minister’s slide said “100% nationalisation” rather than simply “nationalisation”. When we own 60 per cent or 80 per cent or 90 per cent of the two big banks, he’ll be able to say he was never against nationalisation, just “100% nationalisation”….
Lenihan might also argue that nationalising in the past would have been a disaster (Iceland!), but that nationalising now is okay. He’ll say that in September 2008 when the global financial crisis was at its peak, nationalisation would have scared international lenders and made that call to the International Monetary Fund unavoidable. In the more stable environment of 2010, majority ownership won’t have the same effect.
The clever clever Slide 11 also claimed 100 per cent nationalisation was wrong as it would have removed the banks from the stock market, something which the Government claims is important. If we only own 90 per cent of the banks, they can retain the listing, again allowing the Government to pretend they were right.“
EDIT – substitute “if the loans in were in worse shape than expected” for “if the loans in better shape than expected”!!
There seems to be a fundamental misalignment of the meanings of 90% state ownership and total control implied by nationalisation. It is not about the level of share ownership, it is about control. The argument is not about some notional number, it is about whether it is only the state that has control, is not concerned with the short-term views of the equity market or whether the state is limited in the exercise of its control by the equity market’s view of the state of the bank and by the legitimate rights of minority shareholders.
To give just one issue, in the majority ownership condition, the management of the bank gets to decide its own remuneration and bonuses with an advisory shareholder’s vote, hence AIB’s short-circuit of the salary cap by calling Mr. Doherty Group MD. In a nationalised bank, this situation could be different…
Would you see a substantial difference in due diligence in transferring loans within a nationalisaed system?
I know the info asymmetry would be addressed in theory but I worry that the internal due diligence would not lead to as many problems being tidied up. This could end up benefiting borrowersat the expense of tax-payers.
I would also be interested to know how confident we could be that the tax-payer, rather than subsequent private wealth investors, would get the full benefit of the good assets left in the cleaned banks by their executives and loan officers. (Perhaps I am being a bit cynical and paranoid!)
Agreed. Isn’t it the case that the markets see big risks with full state control.
“Would you see a substantial difference in due diligence in transferring loans within a nationalisaed system?”
Diligence, schmiligence, Zhou.
We’re carrying the can here one way or another. The legal niceties are just slowing things down.
Off to teach so no time to give a longer answer but that’s what I think.
Pretty succinct 🙂 !
@ Karl Whelan, Brian Lucey,
Both of you – don’t wade in two far on the first wave, semi-economic, semi-legal problems – to do with all the land banks etc. You simply aren’t qualified enough, in a broad range of subjects, to carry that on your backs. The strategy with regards to NAMA (of a bad bank) was always part of the Labour party’s original suggestion from the beginning. FF took, dressed it up in their own clothing and re-presented it in their own package-ing. I blogged about this here:
Where both KW and BL are much firmly, and are going to be much more valuable in the discussion, from an Ireland Inc. point of view, is trying to understand the second and third wave(s). Coming from your economic background, you are on a very firm footing there. I think, the reason that you understood subordinate-d debt etc, and had a monopoly on that knowledge for an initial period in the NAMA debates, gave you a false sense of superiority in the said debate. Don’t allow that feeling of superiority to overflow and become too apparent – because the country does actually need the economist able to present the right image of themselves, when it comes to the second and third wave(s). As BL said in the IT:
Irish banks are on the rocks, badly damaged by the wave of losses on commercial and speculative property lending. What is now evident is that a second wave of losses is heading towards them. While this is likely to be lesser in magnitude than the first wave, the system is so compromised that it is much less able to take a blow.
Even Pat McArdle said yesterday:
The revenue side appears to be only a little below target but signs of weakness in the two main tax heads – income tax and value added tax – are worrying and all eyes will be on the end-of-March returns.
I guess what I am saying to you, is like what Alex Ferguson said to Roy Keane, before his final world cup with Ireland – not to bother with it, Roy had injuries at the time, and sacrifice-ing himself for Ireland, would only shorten his professional career playing for Man U, or whoever. Stay on the bench for this one. BOH.
“Isn’t it the case that the markets see big risks with full state control.”
No, I don’t think so. The markets pretend it doesn’t exist, otherwise the share prices would be more depressed than they currently are – the markets pretend outrageous things that involve total wipeout don’t exist…
“We’re carrying the can here one way or another. The legal niceties are just slowing things down. ”
If you existed in a closed system where there was only an Irish regulator to worry about, that *might* be true. It is certainly not true in a european context where any cleaned up banks are going to be competing with other banks that have not been given favourable clean-up terms.
“100% nationalization in April would have been the better option.”
I don’t claim to know if you would or would not have been. The point is that the focus of Sarah Carey’s article was more about the spinning she thinks she sees going on than rights/wrongs of policy per se.
“wouldn’t have had a zombie like banking system since then, it would have cheaper and it would have been fairer and less costly for the taxpayer.”
Could you explain how things would have been different over the past 11 months? Also, how much cheaper would 100 per cent nationalisation been compared with majority State ownership and where would those savings have been made?
“If you existed in a closed system where there was only an Irish regulator to worry about, that *might* be true. It is certainly not true in a european context where any cleaned up banks are going to be competing with other banks that have not been given favourable clean-up terms.”
True. We must try and remember we are not on an island, as far as these economic problems go – but part of a much larger picture. I made that point here recently:
My point to KW, BL and all is simple. The job of the political incumbent, FF and Greens, is to weaken you as much as possible during the early stages of this debate – the NAMA stages, where economists are only half able to see the picture – so that when it comes to the second and third stages of the debate, the (academic) economists carry less credibility than they aught to. Even the guy from Barclays capital management on the Pat Kenny show this morning, stressed, the narrow-ness of the economist’s definition of competitive-ness. BOH.
While you’re over there Elaine – check out the possibility of finding a buyer for the 50% of West Ham United owned by the Icelandic banks – The Hammers board need the cash in order to put in a bid for Oliver Vandt and John the Optimist as the striking partnership to put fear into premiership defenders and avoid relegation to the Championship.
Power, dear boy – it is all about power. With 90% the bankers can still fudge – with 100% we can fire the buggers if they don’t do their stuff and provide relevant and factual data & information on the real state of affairs. Time is of the essence. Regards to cousin John!
“So, rather than WANT we see it as REQUIRED.”
Fair enough. You argued that 100 per cent nationalisation of the two main banks was required and that is what the Government should have done. That would have required a legal takeover of the banks last April in the same way that Anglo was 100 per cent nationalised.
As I said above, Sarah Carey’s article is really about people spinning and rewriting history.
Here’s the problem for you. In your Irish Times article on 22 February last you wrote
“there is an ideological obsession at the heart of Government against the notion of the State as the majority shareholder in the banks.”
How do you reconcile that claim with the article you signed last April that acknowledged that the Government “concede that majority State ownership may be required.”?
There’s more. You wrote the following last week on this site:
“Slide 11 is one of the more disingenuous slides. Who pray tell was asking for statuatory pre-emptive takeovers? Maybe the labour party but I think that this is deliberate political watermuddying – ”
Who was asking for statuatory pre-emptive takeovers? Well, you were, as were 19 others last April. How else would the Government have got 100 per cent of the banks?
I am a believer in trawling though what was actually said, not what people claim they said. I just wish Sarah Carey had taken some more time to do the same.
“Would you see a substantial difference in due diligence in transferring loans within a nationalisaed system?”
Doesn’t it depend on what the EU Commission would have insisted on? Presumably, the EU’s guidelines on these types of scheme would have applies, irrespective of the ownership of the banks.
@ Rob D,
you seem to be assuming the luxury of time and also a bottomless pit of money from which to give and get nothing in return.
Just how much longer do you want to wait to fix the banks?
I see your confusion. Preemptive nationalisation is not what we sought- again, read carefully. What we stated, and to what I still hold, is that reactive nationalisation, in full, is the logical outcome of the hole in the banks plus (Greg despite…) the probability of not being able to find sufficient external funds plus the need to get sufficient capital.
As to their being an ideological obsession , there is one, I contend. That doesnt preclude they finding themselves forced to act againt same.
(BTW – how does one get emphases, such as italics and bolds in this?)
say what you want in italics/bold
didn’t work, try again.
” say what you want to say ”
without the ‘ of course.
Can’t do, won’t let me.
basically put those triangular < bracket symbols either side of a ‘b’ or an ‘i’,
and use the / symbol on the second ‘b’ or ‘i’.
Use Ctrol + U in Mozilla to view source, it is easy to learn the tags then. BOH.
Maybe I’m missing something but it is the declared intention of the Minister that “both banks remain in private ownership”.
“The Government re-affirms that it is proceeding with the planned recapitalisation of Bank of Ireland and Allied Irish Banks on this basis and its firm intention is that both banks remain in private ownership .”
And this didn’t work.
The €1bn of “underwriting” never occurred because there was (and is) no appetite for equity investment in AIB or BofI.
“In particular, the government reiterates its intent to provide €2bn to each institution from funds already earmarked in the NTMA for this purpose. As previously outlined, this capital will be deemed to be core tier 1 by the regulator and the terms and conditions when finalised will be framed to underpin market confidence. Furthermore, the Government also reiterates its commitment to underwrite or otherwise support a further €1bn in core capital to each of the banks . As deputies will also be aware, we are also in discussion with certain other institutions about their future capital needs, if any, and we will be working through this issue with a view to early discussions.”
For whatever reason(s), valid or otherwise, it is clear that the Minister was absolutely set against Nationalisation (or temporary Custodianship).
Everything he says now must be seen in that light.
He was absolutely set against “Nationalisation”. He is being forced to do it by creep.
The €7bn “invested” in Preference Shares was wasted.
@ Brian Lucey
(BTW – how does one get emphases, such as italics and bolds in this?)
For “Bold” type this before the text
Type this after the text .
Don’t leave any spaces within the “”
If you have a few more articles coming out I would love if you highlight that
a) In Iceland the ATMs didnt stop working, the salaries still got paid, the lights stayed on when ALL their banks were nationalised.
b) The new “cost of money/cost of funding” lament that Lenihan and the bank CEOs are going on about this week should be clearly labelled as what it is – the cost of banks borrowing money. It hasnt been highlighted enough that the banks not only lent too much but borrowed too much to lend. And not only that, they borrowed short term to lend long term. Which is like buying a buy to let apartment with a credit card. I hate the selective use of financial terminology to confuse the average taxpayer.
c) The only banks of systemic importance to Ireland are Allied Irish and Bank of Ireland and even then their importance to the “system” is arguably overstated.
d) The government guarantee can easily be changed – step one – you change the government
Keep up the good work
does this work?
@ Brian Lucey
Oh, that didn’t work. WordPress read it as aninstruction.
Ignore my “”
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Ha, Ha, Ha, I hope noone is listening to this non-word conversation.
@ BL, yeah, that worked.
That didn’t work either.
OK. Ignore my spaces.
Replave the word string with strong.
If you want to be really clever, you can do the
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All inside the triangular brackets again,
then the title of the article to be parsed as a click-on link
in triangular brackets at the end.
I never bother though. But it can be done. Again, Ctrl + U in mozilla to see it properly.
Can’t bo it.
WordPress keeps translating the instruction.
Second comment down.
ok back to the banks….please
“Both Bank of Ireland and Allied Irish Banks are fundamentally sound and solvent institutions. The Government reiterates that it sees Bank of Ireland and Allied Irish Banks as central to the Irish financial system and essential to the proper functioning of the economy. The Government wishes to ensure that both Bank of Ireland and Allied Irish Banks remain as independent banks ”
Is there any debate about the Governments “policy”?
OK. Joe Citizen will take one at €1; and Joan Citizen will take the other at €1. These are private and independent hands. The real owners. This satisifes the ideological mental reservation and any jesuitical hang-ups that powers to not-be might have. Now can we get on with it? Tempus fugit and the bleedin hole is gettin bigger all the time.
… and they still hold half of West Ham United!
Now that you have figured out the editing functions – HOW DO I SCREAM ON THIS BLOG?
@ David O’Donnell
In cyberspace no one can hear you scream.
Ahhhhhhh I’m off to the holodeck – on my own – Seven_of_Nine not the same since she scored the century with George_Lee ……
I’m not confused at all.
The article called for the full natioanlisation of the banks NOW. There is no other way to interpret this.
I notice Professor Patrick Honohan wrote a few weeks later in the Irish Times:
“This fear explicitly underlies the recent advocacy by some economists for a pre-emptive, temporary, nationalisation of systemically important banks.”
Which economists do you think the poor confused Professor has refering to?
Ok rob. Like many of the “nama will work, nationalisation will cause a rain of frogs” brigade, logic and facts seem to bounce off you.
LAst point I will make on this is : just because Patrick H thinks that we urged preemption doesnt make it so. So, confused indeed.
enjoy your zombie banks….:)
I wonder a little about people who use the phrase “pre-emptive nationalisation”.
As I wrote a few weeks ago to our good friend Zhou:
“Also, I’m not sure I fully understand the phrase “pre-emptive nationalisation” — has a bank ever been post-emptively nationalised? If so, post what? Banks get taken over by regulators all the time when they are still, on paper, solvent. BOI and AIB last year were well past the point where, in the US, the FDIC would have arrived on a Friday afternoon. Are the FDIC a rash and irresponsible outfit because of their fondness for pre-emptive stikes?”
I think it mainly comes down to the fact that “Pre-emptive” sounds hasty and ill-thought out so attaching it to nationalisation and asking someone to defend it is basically a rhetorical strategy.
As I said at the time I was using it as the Minister used it meaning 100% nationalisation of AIB & BoI at the time when you and others first recommended it.
I expect that the Minister used the word “pre-emptive” because it pre-empted any definitive proof that the banks were insolvent and would have been carried out in anticipation of such being the case. I am only surmising but it seems to make sense.
Perhaps the reason the term irritates you is that you associate it with war films aimed at teenagers? Personally, I don’t watch trash TV :).
In a spirit of cyber-collegiatism could we agree on the term “2009 Shock and Awe Nationalisation”?
I always preferred the idea of moving the banks to a state of pre-independence..
I like pre-privitisation.
“I expect that the Minister used the word “pre-emptive” because it pre-empted any definitive proof that the banks were insolvent and would have been carried out in anticipation of such being the case. I am only surmising but it seems to make sense.”
Indeed it would make sense. Of course, if that was his assessment then, it was one that I (and many others) completely disagreed with, a disagreement that subsequent events have justified.
Just to clarify though, the musing above were not intended as a sly dig at the Minister (I tend to be pretty front and center with my ministerial admonishings.) I was referring to “people who use” the term, present tense i.e. people who keep using this term despite all the evidence that the banks were and are insolvent without state help.
Surely pre-emption means, in this case, anticipating the possibility that, in the absence of nationalisation, the banks will sink the economy.
If as Zhou says that the minister meant “pre-empted any definitive proof that the banks were insolvent and would have been carried out in anticipation of such being the case” then the action would be too late.
The analogy would be taking pre-emptive action to put out a chimney fire rather than waiting for proof that the whole house was on fire!
in my view…
Anglo/Northern Rock/B&B – nationalisation along the lines of them going to the Central Bank/Dept of Finance and saying “we’re not gonna be able to open up in a couple of days”, and so are already insolvent and illiquid.
AIB/BoI – “we’ll be able to stay liquid and technically solvent for months, maybe even year,s to come (down to the g’tee and the ECB funding)”, so hence any nationalisation would be, ta-da, pre-emptive…
A final thought. I think the whole “European Commission would have held up the NAMA under nationalisation” meme brewing up above is based on a misunderstanding of what the EC’s role in all this is.
The branch of the EC involved in this stuff is the “State Aid” office. They really dislike
(a) Governments helping out privately owned firms with taxpayer funds.
(b) Government-owned firms competing against private firms in a way that sees the government firm using an unfair advantage.
The current NAMA situation involves a potentially large transfer from the Irish governments to privately owned banks. So (a) is what applies in this case and the EC are going to want to see proper diligence done on loans.
If the banks are nationalised, then (b) is what applies. There is no helping out of one private firm over another. In this case, the state needs to promise that it will run the banks as normal commercial enterprises and probably also promise to get them back on the market within a certain time frame.
So, yes, the EC would be involved if there was nationalisation. But, in my opinion, this involvement would not have prevented a quick transfer of assets to an AMA and a much faster resolution process.
… brass buttons anyone?
@ Bond. Eoin Bond…
– “we’ll be able to stay zombie for months, maybe even year,s to come “
Then they take an entire generation down with them. BRASS BUTTONS ANYONE? We are not that far off it ……….. time for REAL ACTION is way past at this stage ……. and the Neros are fiddling away in the board_rooms.
I’m goin back to the holodeck – try to find me an interestin romulan!
“BRASS BUTTONS ANYONE?”
You’ve lost me there.
To much time on the holodeck.
@Greg’s continuing grooming for high office ………
In significant crisis on the high seas, when ship in imminent certainty of sinking as heading into Hurricane Force 10, and the captain & officers & major interest groups strenuously oppose change as they sip sorbet and flog or keelhaul unruly lower elements in the crew, then savvy members of the crew, in the public interest, take over the ship – and CHANGE DIRECTION. In the business world it is known euphemistically as Dictatorial Transformation in the strategic management literature; Don’t think Iceland – think Pitcairn!
AIB/BoI – “we’ll be able to stay liquid and technically solvent for months, maybe even year,s to come (down to the g’tee and the ECB funding)”, so hence any nationalisation would be, ta-da, pre-emptive…
And that commie institution FDIC always pre-empts too.
& found me a Romulan, with a fleet. Be off Howth at dawn (-; Suitably attired please – need to make an impression on the 1 o’clock newz, you know. Admiral Greg do for the mo?
All ideologies are prescribed from noon tomorrow. Action-orientated pragmatists only until the ship of state back on even keel, and under enlightened management. All Ferengi, cowboy or otherwise, to leave within 24 hours – and not come back. The time is now!
E65 billion and no extra lending is back – and he has the €65 billion (don’t ask!), which should tide us over for a while as we sort things out.
Citizen Admiral Greg surely?
… and the New York Times are already calling it –
THE GREEN REVOLUTION
.. twill do for the mo.
Aye Aye Citizen Admiral.
@ Zhou En_Lai has just negotiated a couple of $trillion with the cousins – who have been looking to offload some risk on the dollar.
See how simple it is when one takes decisive action – we are more than solvent already. The minister for finance is trebling the minimum wage – we are going high-skill, high-tech, sound finance, globally cosmopolitan, and spinning in the vicinity now carries a minimum twenty year sentence.
Eoin will be busy as we cannot keep up with demand for our bonds …….
Now that all that is sorted – time for a little fling with a recovered Seven-of_Nine on the holodeck. Seee ya awl at dawn (-;
I have to say, for once in my life, I agreed with everything Sarah Carey said in her article.
Why won’t the media realise that the only political party with the best analysis of the banking crisis is the Labour Party?
Perhaps without knowing it, Sarah regurgitated the Labour Party’s analysis on the banking crisis almost word for word.
Lets just cast our minds back to Sept 2008 and remember who thought the bank guarantee was rubbish from the get-go!
“So, yes, the EC would be involved if there was nationalisation. But, in my opinion, this involvement would not have prevented a quick transfer of assets to an AMA and a much faster resolution process.”
That is fair enough. There would also have been, if all the banks were involved (i.e. nationalised) a simpler process of working out who owned how much of what. The dead pool of loans could have been locked in a room and fed canapes and claret until gout or agreement got them.
At the very least, the good/bad bank split (as Anglo is planning to do) could have been made quickly with the good banks partially refloated with some element of debt to equity or newly sold equity used to pay off senior bonds, while the bad banks sorted out the AMC element.
However, what is not clear to me is that had the state made a good/bad split a precondition of preference recapitalisation that we wouldn’t be in a better position than we currently are or would be through nationalisation. It does create zombie banks, to be sure, but every other solution creates either zombie banks, a zombie state, or in NAMA’s case, both.
Bond Eoin says:
Anglo/Northern Rock/B&B – nationalisation along the lines of them going to the Central Bank/Dept of Finance and saying “we’re not gonna be able to open up in a couple of days”, and so are already insolvent and illiquid.
Gee, isn’t it true what they say about financial memory all the same. I mean, what you describe in that paragraph, really does put me in the holodeck – the holodeck of 2008. It is hard to come to terms today, in early 2010, what a rare snap shot in time, that 2008 actually was. On the one hand you had a wide variety of people (including myself) who were in complete denial of effects as they were playing out. Even professor Niamh Brennan, hints at that in his interview in this months edition of UCD Business connections magazine. I find it hard to believe myself, I almost require a history book now, to bring me back to 2008. I can only imagine, in 10 or 20 years time, what my financial memory of that snap shot will be. I saw Noam Chomsky on The Frontline not so long ago, discuss his dim memories of the Great Depression. He got the feeling there was more optimism around at the that time, than there is today.
Okay, the point I simply wished to make was: The trouble with the 2008 crash was, there wasn’t any one outstanding event to mark it. With a stock market crash, like 2001 dot.com for instance, it is simple. The NASDAQ is worth ‘X’ times less than yesterday, the writing is on the wall, and there is no argument. No so with property & credit collapse unfortunately. That is the basic trouble with a property crash. Trying to get people to re-evaluate prices downwards after a property bubble is like pulling teeth without an anesthetic. No one steps forward, and we go into a collective huddle. NAMA was a response which was moulded completely by that fear, that people would stay in the huddle indefinitely, wishing to cling onto their hopes, that it was all a bad dream. There was no ticker tape. No undisputed sign. Even Northern Rock, as real as it was, wasn’t very real. Because of the whole bail out thing, as Andy Haldane describes so well in his papers. I am not saying that a stock market crash is better than a credit/property collapse. But at least there is that signal, that stark signal. All that remains then, is to jump off the cornice! BOH.
“I would refer to the time I fell out (cyber-style) with Mr. Gurdgiev.
Mr. Gurdgieve acknowledged back then that NAMA could lead to 90% nationalisation. I agreed. That has been the case all along.”
Can you then provide a reason why Fianna Fail and the Green Party thought otherwise?
Or if they didn’t think otherwise why they led the Citizens to believe it was other than that?
And, while all this (deliberate) confusion has been ongoing how much money that could have been utilised in a resolution process has left the country?
NAMA was a response which was moulded completely by that fear, that people would stay in the huddle indefinitely, wishing to cling onto their hopes, that it was all a bad dream.
I suppose by that particular definition of NAMA, (bear in mind Peter Bacon would have received his brief in late 2008 I suppose, to produce his recommendations by March/April 2009) NAMA was a creature which was informed by the very peculiar paranoid that would have been present in late 2008.
Would anyone care to discuss or agree with that statement?
“At the very least, the good/bad bank split (as Anglo is planning to do) could have been made quickly with the good banks partially refloated with some element of debt to equity or newly sold equity used to pay off senior bonds, while the bad banks sorted out the AMC element.”
You cannot be suggesting that there is anything “good” in Anglo Irish Bank.
I have favoured the liquidation of that bank and Irish Nationwide Building Society since I became aware of their Nation Destroying behaviour.
I still say they should be thrown to the dogs that bred them. Let them eat themselves when they run out of cake.
Am I missing something?
Gee, I was out all day – sorry for being so late in.
Look – to me this part of it is quite simple
The government did not want to 100% nationalise. The policy was
1. clear out the toxic debt
2. overpay for it and thereby achieve some of the capitalisation indirectly…
3. having cleared out the bad debts, hope that the banks could find the rest of the money from the markets
4 .do this as quickly as possible so that we don’t have zombie banks
This policy has failed on all counts. First, its been desperately slow, so that we have had zombie backs. Second the EU has put the brakes on over paying and so scuppering the indirect recapitalisation plan. Third despite setting their face against nationalisation, its now going to happen anyway via the dividends having to be paid in shares. Fourth there is no sign of the banks being able to raise sufficient funds on the markets – because it seems clear there is still going to be a significant toxic debt problem even after the Nama loans have been transferred.
So, the bottom like is that one year on – we have nothing. No recapitalisation, no toxic debt out, zombie banks paralysing the economy – a whole policy borne out of an over-riding desire NOT to nationalise.
I think the point is that if the government hadn’t set its face against nationalisation (pre-emptive, 100%, whatever) and had done it a year ago, we might be much further on. What’s so frustrating about current government policy is the time wasting – and for what? So we end up owning 80% instead of 100%? What is the advantage in that missing 20%? None to shareholders anyway….
“The trouble with the 2008 crash was, there wasn’t any one outstanding event to mark it.”
I remember back in late Sept/early Oct 2008, literally right at the worst part of it all, the guy i work with on the desk had been off for three and a half weeks. Not sunning himself on a beach or anything, but basically in the middle of the jungle in South America, no mobile phone, no newspapers, no Cnn, nada. He was getting back into Dublin on the Sunday afternoon and i was out of the office on the Monday, so he was basically going to be walking right back into it all without a clue of what was going on. I had to leave him a 2-3 page email detailing, as best i could, everything that had happened over the previous 3 weeks. The key to it all was, like you said, there was no single way or event to explain it, i literally had to list about 30 or 40 seperate things that had occurred – banks going bust, merging, govt guarantees, legislation, Iceland, Lehmans, AIG, Citigroup etc etc etc. I think i ended it with something along the lines of “forget everything you knew, these are the new rules…”. I gave him a call mid-morning on the Monday to see had he read it and was doing ok etc, and i’d say the term “f***ing hell” was used around 25 times in a 5 minute conversation i had with him.
Just a couple more points
First, I’ve spent the past year or so desperately wanting the government to be right and where possible I’ve expressed support for Brian Lenihan. I think fiscally they got their act together. It’s in my interest that they get this right and I’ve nothing to gain by the policy being wrong! But the inevitability of the thing happening (nationalisation) that they did their best to avoid has got to be evidence that they were wrong.
Now, I don’t mind them even being wrong! Everyone’s feeling their way through uncharted territory. But it pissed me off when I looked at that slide and I realised that it meant that they know they were wrong, they know what’s coming this summer and rather than stand up and say – f*ckit, the plan didn’t work, we’ll go with Plan B – instead they are working hard to prepare the way to say oh this is what we had planned all along. That sort of game playing is annoying when all of this is so serious.
We are going to own those banks. 80% – 100% whatever. Let’s just do it and move on.
“….we’ll go with Plan B….”
I don’t like Plan B.
Plan B is to waste another €8bn in Anglo (don’t let anybody tell that’s not the number) and waste €3bn in Irish Nationwide Building Society (don’t let anybody tell that’s not the number).
This is not about Nationalisation or Not Nationalisation.
This is about “GIVING” €30bn + to Bondholders.
They took the risk they should take the loss.
But the ECB has other ideas.
@ Bond. Eoin Bond…
“forget everything you knew, these are the new rules…”.
For God sake Bond.
There are no “new rules”.
You just got initiated into the old ones.
Still think it’s worth putting €8bn into Anglo?
@ Bond Eoin,
The key to it all was, like you said, there was no single way or event to explain it, i literally had to list about 30 or 40 seperate things that had occurred – banks going bust, merging, govt guarantees, legislation, Iceland, Lehmans, AIG, Citigroup etc etc etc.
Again, I think you have nailed it there. I think furthermore, that come the anniversary of the announcement of NAMA quite shortly, Karl Whelan should enable you to post up a guest post or something – along the lines of that email, to show a summary of all the things that happened. Most of us have forgotten. In fact, most of us arm chair, amateur economists would view late 2008, as a real non-event, except for Lehmans. Lehmans, was one of the few event-events, in the whole thing. With the exception of Iceland maybe. But personally, I didn’t even pick up on the Iceland story. I was too worried with stuff closer to home. I think the reason that most cling to Lehemans, or sub-prime, at this stage, is because it is the only stand-out event in the whole mess. But by no means a broad representation.
One of the most interesting things was the strength of the Euro relative to the dollar, and the part that played. China etc, storing Euros as well as dollars. The US really thought they could put the foot on the peddle, but nothing happened. Then you had things like gold and oil going wild – remember Michael O’Leary get stuck badly there, and widely criticised by shareholders etc.
The major characteristic, was those whole series of non-event events, where one bail out followed another. We are still talking about bail outs and capitalisations still. Most arm chair economists, like myself at this stage have given up following it all. That is why it is so hard for guys like Brian Lucey to go on TV and make it interesting. John McManus wrote on 30th Dec 2009:
It’s a measure of how conditioned we’ve become to failure and incompetence in public life that the revelation by the Dublin Docklands Development Authority (DDDA) that it has blown €213 million of taxpayers’ money is met in the most part by weary shrugs and eye-rolling.
I will be honest, as an arm chair economist, in late 2008, the only strange thing in my world – apart from getting fired – was to see all of the re-releases of books by Kenneth Galbraith, Joe Stiglitz, Paul Krugman, George Soros, Alan Greenspan (with added chapters) and just about every other codger out there. The funny thing is, I must be one of the few anoraks in Dublin city, who had read a lot of those books prior to late 2008. But then, they started flying off the shelves, literally, all the old editions. It was like a Beatles or Doors revival, except for economics books! BOH.
Of course, the only thing that Lehmans an event-event, is the FED choose not to do a bail out. That is what made it an event at all. All of the other insolvent institutions which received assistance – even Northern Rock – go down now, as kind of non-events. Which is the really stupid part about it. BOH.
@ Brian O’ Hanlon
“Most of us have forgotten”
I haven’t forgotten that Brian Cowen & Brian Lenihan indentured every Citizen in this State with €450,000,000,000 of debt.
“I didn’t even pick up on the Iceland story. I was too worried with stuff closer to home.”
I did “pick up” Iceland.
Here’s a clue. It’s not from 2008 it’s from 2007.
@ Brian O’Hanlon
From all the talk over the past few years I think the ‘man on the street’ has generally accepted that it was all Lehman’s, AIG’s, Derivatives’ etc. fault. This will probably be the accepted history of the crisis. While everyone has been keen to apportion blame, what actually happened has never been widely reported in the MSM. The following paper does a nice job of rectifying this. If you haven’t seen it already, i think you’ll enjoy it.
re: Anglo good/bad bank or liquidation –
“Am I missing something?”
Yes. The split to good/bad bank is essentially a liquidation. In a liquidation you try and recover any residual value in the assets tangible and intangible. As you point out, the intangible assets are worth little, but there is still value to some of the tangible assets. Selling a ‘bank’ as a package is probably a better way to get value than selling the bits of it.
you have taken the red pill…welcome.
your articles and comments above are honest and reflect a general feeling I think in media. Whats now needed is for more people to act as you have.
I don’t want to give Anglo 8bn either.
However as you say. saving Anglo and paying bondholders is not Irish government policy but EC policy. To that extent I think Fintan’s and Elaine’s implicit arguments that pursuing these ends is a fault of either the Irish people for not protesting enough, or FF for bailing out their mates, underplays the extent to which we don’t have sovereignty on these decisions.
“Anglo and paying bondholders is not Irish government policy but EC policy.”
In fact, the European Commission have been pretty tough on subordinated bond holders. Certainly, their competition-related concerns about maintaining a level playing field have lead to them being more protective of our tax euros that the DoF would have been on its own.
Sarah Carey said: But the inevitability of the thing happening (nationalisation) that they did their best to avoid has got to be evidence that they were wrong.
That is an illogical statement. Is trying to avoid death through hygiene and healthcare a wrong policy just because death is inevitable?
The reason for avoiding nationalisation was to avoid the entire funding requirements of the banks falling on the state. The plan was, and presumably still is, to keep the good parts of the banks private so they could fund themselves outside of the sovereign debt markets. I will post quotes form Minister Lenihan below.
Sarah Carey said: So, the bottom like is that one year on – we have nothing. No recapitalisation, no toxic debt out, zombie banks paralysing the economy – a whole policy borne out of an over-riding desire NOT to nationalise.
The policy was born of an over-riding desire not to have to follow Iceland down the path of letting its banks default on deposits and senior bonds. Efforts to avoid 100% nationalisation were a result of that desire. There is no ideological opposition to naionalisaton on the part of the Minister or on the part of the Government. Even Mary Harney said out straight that it was not a time to act on the basis of ideology.
We still have a functioning banking system even if credit has dried up.
We have been able to raise funds in the sovereign debt markets to date.
We also have
– complex legislation to strengthen and protect the AMC/NAMA in how they deal with securities. This was necessary with or without nationalisation.
– a due diligence process which protects the tax payer inside or outside of netionalisation.
– a huge amount of work done in relation to perfection of securities. Would work have been undertaken with the same vigour and thoroughness in 100% nationalised banks?
– an international reputation for seeking honour our commitments and support our banks.
– good political relations with Europe as we have not sought to default on foreign depositors and pension funds.
As Minister Lenihan said previously:
“Nationalisation would not make the problems faced by the banks go away. I remind members that many of the difficulties relating to managing impaired loans, cleansing the balance sheets of the banks and dealing with legal challenges would also arise in the context of a nationalised banking system and perhaps even to a greater extent.”
Sarah Carey said: I think the point is that if the government hadn’t set its face against nationalisation (pre-emptive, 100%, whatever) and had done it a year ago, we might be much further on.
We might be dead in the water. Let it not be forgotten that “dead and buried” is the flip-side of the “might be”.
Sarah Carey said: What is the advantage in that missing 20%? None to shareholders anyway….
The contrary part of me thinks the Government may have been trying to benefit the shareholders becaue they had sympathy for them and for political reasons. I too have a huge amount sympathy for them but I rail against having to subsidise the private wealth of fellow citizens out of my taxes. If my money is to provide a social safety net for anyone I want it to be means tested or universal. (I don’t like paying senior bondholders either as they fuelled the bubble but I am not going to risk the country’s future by picking a fight I can’t win).
Below are some quotes form the Miniater for context. These were not hard to find. The problem was there were too many and whittling it down to be relevant. For clarity, I agree that we must constantly re-assess our position and be ready to change approach as circumstances dictate. One must keep one’s focus on the goal to be achieved.
Brian Lenihan – Dail Eireann 3 July 2009:
The IMF’s report seems to have prompted a change in the Labour Party’s approach to the banks. In this House in May a Labour Party Private Members’ Bill called for the pre-emptive nationalisation of all the institutions covered by the bank guarantee scheme. Now it seems that Deputy Gilmore wants only the two largest banks to be nationalised. Let us be clear, the IMF does not support the pre-emptive, wholesale nationalisation of the State guaranteed banks as an alternative to an asset management agency approach. What the IMF said, and I agree, is that the State should be prepared to take larger ownership stakes in the banks, if necessary, and even full ownership in certain circumstances.
Brian Lenihan – Joint Cttee on Finance and the PS – 26 May 2009:
Wholesale nationalisation is something we should avoid, if possible. This is not a position held no matter what the cost but rather a balanced approach to current circumstances. We have nationalised a major bank which had substantial exposures. I have made it clear that if any further capital injections are required from the State for either of the two main banks, these will be in the form of equity capital, which would have the effect of increasing State ownership of these two banks.
Funding is the crucial issue for the Irish financial system and it is important that we have some banks which have some private involvement because they can then fund themselves abroad as private institutions. Otherwise, if we have a 100% nationalisation of the system, all of the funding of the entire Irish banking system rests on the State and the State exclusively, and I do not believe that would be a sustainable position for the State in the future.
The baseline conclusion I reached was that it was not necessary to nationalise the good part of a bank. A good part of a bank is able to get the adequate capital resources it needs from the market. To nationalise it would leave it dependent on the Exchequer, which has so many demands on it that cannot be met in the market.
If one nationalises the good parts as well as the bad parts, one has then nationalised the banking system. The Irish State must then secure the funds abroad to fund the banking system. In addition to the funds the State must borrow to fund the State this year, it would then be under the obligation of funding an entire banking system. I do not believe, as a matter of public policy for a small country such as Ireland, that to restrict external lending to the State and not to have any private lending overseas would be a desirable economic development. It would not be a sustainable development in terms of providing the funding to which the Deputy refers for small and medium-sized enterprises, house purchasers, car purchasers and for consumer purchases.
Brian Lenihan, Dail Eireann 12 May 2009:
Nationalisation of the whole of the Irish banking system, which is what is being proposed in the motion, will not be the short-term panacea that some envisage. Wholesale nationalisation would do absolutely nothing to resolve to the banks’ bad debt problems and get credit flowing again to support economic recovery and jobs. Nationalisation may change the brass plate, but it does not provide the individual institution with any additional funding or any resolution of the bad debt problems which cripple our financial institutions.
The Government’s objective is to ensure that the lending needs of the real economy are met. A commercially focused banking system, which includes banks having a market presence, operating within market disciplines and constraints, is best equipped to achieve this aim. This is not a position held no matter what the cost, but is rather a balanced approach to the existing circumstances.
The Government’s objective is to ensure that the lending needs of the real economy are met. A commercially focused banking system, which includes banks having a market presence, operating within market disciplines and constraints is best equipped to achieve this aim. It is not a position being held no matter what the cost, but is a balanced approach.
The Labour Party is ignoring clear international evidence that wholly wholesale nationalised banking systems serve their economies poorly. The evidence shows that compared with commercially focused banking systems, nationalised banks charge higher interest rates to businesses and households, provide less credit to the economy and discriminate against small and medium sized businesses. Higher interest rates and less credit are not what our banking system needs. Banks all over the world are struggling with damaged balance sheets, yet no country is currently adopting a policy of wholesale bank nationalisation in this banking crisis except Iceland. I presume the Labour Party does not want me to repeat the name of that country in the course of this debate. There is no immediate reason for Ireland to adopt such a policy. If Ireland was uniquely to proceed down that route it could, from an international perspective, be very damaging to its reputation and attractiveness to international investors, not only from the perspective of the provision of funding to the banking sector but from that of international investment more generally.
Ah Zhou. What a load of claptrap.
Every single one of your arguments was discussed, dissected ,and I think to be fair dismissed, by the middle of last year ; the state would have to pick up the liquidity tab, the senior bondholders need to be cut say the woolyheaded nationalisers. Come on man….
So those are the good quotes? Wholesale? Iceland? Reputation? Funding?
If you think I’m going to go through all those old quotes and dissect them yet again, you’d be mad.
Do you really mean to say that YOU have discussed etc and dismissed Zhou and Lenihan’s reasoned arguments. However whether other rasonable people agree with you is a moot point.
We have nationalised one bank and what has happened. Has it been restructured? is private sector liquidity still available for that bank? does it have access to private sector capital? do we have transparancy about what its up to? Would the answer to all these questions be in the affirmative.
I find the arguments against nationalisation (if its an option) compelling. I still find NAMA to be the best of 2 not great options. You said on Frontline that recapping the banks ost nationalisation would cost tens of billions. Where do you propose to get that funding?
Where do you propose to get to get the senior debt funding for our liquidity starved banks when their explicitly on the state’s balance sheet, when the ECB might be winding down its liquidity support and some are threatening to haircut senior bond holders?
What do you think depositors will do if the banks are nationalised. My guess is they take the money and run. Thats what they did with Anglo.
“For clarity, I agree that we must constantly re-assess our position and be ready to change approach as circumstances dictate. One must keep one’s focus on the goal to be achieved.”
Pitcairn Zhou – think Pitcairn! Policy of the present PIIG leadership is to devour the litter of one entire generation of Irish citizens so as to look pretty in front of the Abstract_Financialized FERENGI powers.
50 seconds to meltdown …
Please please no more Star Trek references. People might start to think we’re nerds or something.
There are certainly way too many quotes to spend time going through them again. Indeed, there are so many that I don’t know if they are the ‘best ones’ as you say.
I put the quotes there so people could read them and make up their own mind.
Sarah Carey’s point that a move towards nationalisation now would mean, ipso facto as it were, that the government’s approach to date was wrong is erroneous imho. Similarly, it is wrong to say that nothing has been done or achieved. It would be wrong for us not to keep the pressure up on the Government but irrational criticisms do not achieve that.
I also wanted people to see that the Government did not need to “pretend” that nationalisation was an optional part of theplan all along if necessary.
I don’t really know what you are on about.
Metaphors are useful explanatory tools – and the 1 in 3 20_somethings on the dole at the mo are far more familiar with the nature of the ferengi than with terms such as derivatives, subprime, subordinated, senior debt, etc. : the media is the message and the citizenry is both my platform and the audience ……. there are no ‘nerds’ in the ‘dismal’ science surely (-;
I see. The Star Trek references are aimed at our Yoof audience. Both of them.
By the by, finding actual experience more relevant than mere opinions, please put a tick beside the current banks that my particular institution is willing to lend to…
I’ll give u a clue, its not the five letter one…
Indeed, let’s base all policy on idiosyncracies relating to the First National Bank of Eoin’s attitude to the basket case that is Anglo.
Was your bank willing to lend to Anglo before Sept 2008?
how about this, how about you provide me with a nationalised bank and ill let you know if we lend them cash.
Lets starts with Nrthn Rock and B&B….. em that’d be a double negatory there…
Of course there are many privately owned banks that we dont lend to either, so its not to say that the situation is mutally inclusive. Generally the lines get pulled in the lead up to nationalisation as fears grow for their stability. Often there are reputational aspects to the decision as well.
However, it is a rather large amount of food for thought to those people who continually claim that funding would be either more or similarly available to nationalised banks, rather than less so.
i think they were pulled after the ILP deposit scandal, which is when the talk of nationalisation started to kick up significantly. However, more importantly, 15mths later they still haven’t been re-activated, necessitating emergency ECB funding in spite of continued ample funding for the rest of the State.
Karl, I simply find such metaphors useful in getting to essentials of complexity of present states of affairs – and I make distinctions between the ‘real’ and ‘anonymous’ contributors etc. in selecting interlocators etc Within complexity science one cannot do without ‘rugged fitness landscapes’, for example, and where would we be without the ‘ship of state’ in political science, or minsters without ‘the fullness of time’, or economists without the metaphor of the ‘rational individual’ – & Pitcairn makes a change from Iceland. The holodeck now has a significant pedigree within the broader social science field. Ever tossed in a few metaphors to an academic paper yourself – sure you have. Over and out.
are you doing any biz with the Icelandic banks?
HAs your attitude to LLOyds or RBS changed even though they have substantial state ownership.
What about the Landesbanks or Depfa? Do you lend long term to them?
I am a little confused by your Anglo argument. Are you saying that if Anglo hadn’t been nationalised then your institution would still be lending to it?
Or is it perhaps that Anglo needed to be nationalised because institutions like yours stopped lending to it?
There is a chicken and egg here, I’m just not sure I fully agree that you have picked the right one.
More generally, there seems to be a lot of talk about the government being ideologically opposed to nationalisation, the follow on from that being that people who call for nationalisation ideologically approve of the idea. I’m pretty sure both premises are wrong, but when positions start to become entrenched (or at least be viewed as such) then pragmatism goes out the window.
Must re-read Allison’s excellent ‘Essence of Decision’…
So basically your bank was lending to a basket case until it became clear to all and sundry that it was a basket case. What guarantee do you have that other institutions you are lending to, do not have skeletons in their cupboards which would make them basket cases too. Perhaps not Anglo basket cases but basket cases nevertheless.
And what LorcanRK said. Chicken or egg?
we have been here wearyingly many times before ; post hoc ergo propter hoc.
@ Karl Whelan,
Is that something you could undertake Karl?
Something like a thread prior to the anniversary of the announcement of Peter Bacon’s NAMA proposal – a thread on which the contributors to IE could brainstorm all of the events, they considered to be signficiant in the 2008 play out of the crisis. My reason is this, I think that Peter Bacon’s response was informed by the 2008 crisis, and the mentality that existed around then.
My memory of the 2008 crisis isn’t good at all – and I probably only witnessed it from my own point of view. I was too busy finishing projects for Liam Carroll at the time. But I did my best to set out a forensic time line here (full of personal biases I accept):
I would be greatly interested, what a similar group-think paper from the Irish economy group-brain would look like. I believe, a lot of the discussion around here about NAMA has gotten stale – because we have moved too far away from the conditions of 2008, which forced us in the direction of the NAMA solution, to begin with.
Just a suggestion – but I thought it might be a worthwhile exercise from an academic economists point of view also – since, you would have to teach the event of the 2008 crisis to your students in years to come. My guess, is that the Irish economy blog community is going to change or move on, at some stage, that is how virtual communities operate. It would be interesting to capture some of the knowledge available here, while there is still the opportunity.
The following paper does a nice job of rectifying this. If you haven’t seen it already, i think you’ll enjoy it.
Will check it out, thanks. BOH.
@ Lorcan, Garo, and Brian L
“Chicken or egg?”
Are the Irish banks not obvious basket cases right now or not? If they are, why are we still lending to them? If not, why do they need to be nationalised??? Riddle me that…
At no stage have i said that nauseating “post hoc ergo proctor hoc” crap, in fact i’ve massively cavaeted my position above. Re-read if you’re somehow unclear on this. I’ve simply stated the situation as-is in reality as opposed to in theory: we dont, in general, lend to nationalised banks. Isn’t nationalisation supposed to help stabilise the banks and keep credit flowing? I’m 99% sure i will be able to find a few of you saying this time last year: “why wouldn’t banks be more willing to lend to nationalised banks than struggling private ones”? My position is that the current evidence would strongly dispute this.
My other favourite stupid suggestion on here over the last while: “if investors get their money back from current Irish bank/state investments, then they will be unwilling to lend again having had such a close shave. However if we enforce losses on them, then they will respect us more and look for new investments going forward”. Explain that logic to me. Bernie Madoff is also looking for the answer.
we have actually had little or no credit lines for Icelandic banks going back a good while, like since 2007 or so, and absolutely none whatsoever now. We never liked the set up there.
However, for the most part, lines with Lloyds and RBS have been maintained, once again justifying to some extent the creeping nationalisation suggestion that i have backed as being wholly different to sudden and total nationalisation.
Landesbanks are different again, and again if anything justify the anti-nationalisation position, in that they still have ample credit available to them, as their situation has been quite stable. In reality, the instability caused by the situation both pre and post nationalisation is probably what causes most credit to be terminated, combined with general running down of anncillory businesses and reputational problems arising from continued business with them.
The reason we have been going round in circles on this point is the pro nationalisers grossly over sell the benefits and completely undersell the risks of their per strategy. Nationalisation is like Bush’s invasion of Iraq. It is easy to go in but much more difficult to get out.
As the MOF points out ad nauseum, it has not been tried as a first resort anywhere else during this crisis.
I have a blog on the slow burner to tackle some of Brian Lucey’s arguments amongst others – but here is one of the most prominent prongs of my attack. I wrote here:
It appears as though we have given away the basic communications infrastructure in this country, before we remember to hook up our Garda stations with e-mail.
What are those non-profit making, components of making which should never be removed from national ownership. I.e. Not gifted into the hands of some multi-national? Take a parallel, air travel, what would be so bad about a multi-national such as Ryanair owning its own terminal? Would that be such a crime. In the UK, the British Airport Authority has been in private ownership for a long time. Unlike the DAA here in Ireland.
I suppose the question, I am posing with the Garda station and the e-mail – is what parts of the banking system (like the communications system) are necessary to glue other bits of the national functions and public bodies together? And which may not generate that much in profit, for a multi-national. For example, running a broadband line into a garda station. A good academic reference, for the sheer geek value of it, is David Eisenberg’s essay The Rise of Stupid Networks. What parts of banking are stupid? What parts are not? Can we manage to separate out one from the other? Read David Eisenberg’s essay, it is a nice concept. Nobody here yet, has grasped this nettle. BOH.
Sorry, components of making, should of course read: components of bank-ing. BOH.
We are well well beyond the first resort at this stage….dont you think?
Perhaps it would be more precise of me to say – that while the policy may have been worth trying, it doesn’t seem to have worked – The purpose of the structure of the recapitalisaiton was to avoid ownership, but now we will own them – just at a higher cost. That is a failure, unless you accept the Then and Now argument – then was bad, now is okay, which you seem to be proposing and hey! maybe there is an argument there. I think a lot of people were enormously relieved we made it to the end of 2009 without the IMF….
My main beef is that the famous Slide 11 appears to preempt the arguments for the time when the government has to give in and accept the majority stake/nationalisation. So I won’t condemn them for not trying, but I am annoyed that they are clearly preparing the arguments so they can say when we own the banks “oh this is ok! sure we never had a problem with this” instead of saying ” damnit, we really tried to avoid this, but it looks like by summer we’re going to own these goddamn banks anyway. Right, let’s let everyone know what we intend to do with them once we do own them”.
However I do acknowledge that a lot of this seems like the peace process. Things are said with a view to managing the consensus and pleasing constituencies rather than publicly accepting certain realities. (e.g. sure for all we know they are ready to shit on the subordinated debt holders but they can’t SAY that or the guarantee will be triggered)
Anyway,I’ll be looking at it from another perspective next week which might not annoy you as much 🙂
“Save your Banks!” Wasn’t that the Trichet line? 🙂 I guess HOW is another question…
You don’t appear to like to be confronted with what you actually wrote in the past. You can choose to ignore me, that is your right. But I notice you didn’t get back to me on my previous request. I’ll try once more:
In your Irish Times article on 22 February last you wrote:
“there is an ideological obsession at the heart of Government against the notion of the State as the majority shareholder in the banks.”
How do you reconcile that claim with the article you signed in April 2009 that acknowledged that the Government “concede that majority State ownership may be required.”?
@ Karl Whelan
“BOI and AIB last year were well past the point where, in the US, the FDIC would have arrived on a Friday afternoon. Are the FDIC a rash and irresponsible outfit because of their fondness for pre-emptive stikes?”
Let’s forget about what it is called. Preemptive, full, 100 per cent nationalisation. Let’s focus on how it is done. That should clear things up.
Anglo was nationalised by a legal instrument. A bill that passed the Dail. Your reference to the US suggests that something similar happens in the US. The authorities have legal powers to nationalise a bank over. A statutory nationalisation, as the Minister referred to it in the slide 11.
In the Irish Times article you and 19 other academics wrote in 2009, you called for full nationalisation of BOI and AIB now. How should that nationalisation have happened? Use the Anglo bill and change the name, perhaps? Or what exactly did you have in mind?
Can you please answer the following questions to convince me that nationalisation works’
We nationalalised Anglo a year ago. What has happened to the funding of Anglo since then?
why would the situation be any different at AIB/BOI
You are an advocate of nationalisation, restructure, recap. What would you do to equity holders, subbies, senior debt and depositiors?
What assets would you sell or not?
What is your estimate of the cost of the recap?
How would this be funded?
what implications would this have for sovereign borrowing?
If you have published a detailed plan already, perhaps you could just attach a link.
If you do get to the end of this thread you will see the truth of what I said earlier: the banker/broker/politician Jesuits have done all they can to confuse the banking debate.
@ Sarah Carey, Brian Lucey, Karl Whelan,
I penned a quick blog entry this evening, The Rise of Stupid Networks, to address this whole debate we are having here at IE blog site. Will you make a print out this weekend, and sit down to read it?
“How do you reconcile that claim with the article you signed in April 2009 that acknowledged that the Government “concede that majority State ownership may be required.”?”
I don’t see the conflict that you perceive. Let us suppose that you are a government with an ideological distaste for, say, pickled herrings and that I am holding a delicate part of your anatomy in a burdizzo (assuming for the purposes of argument that you are a person of the kind that has the parts to which a burdizzo is generally applied). I think that I could persuade you to concede that pickled herrings were a good thing — but that would not necessarily change your ideological aversion to those estimable comestibles. I could then describe both your concession and your ideology with no contradiction between my statements.
“We nationalalised Anglo a year ago. What has happened to the funding of Anglo since then?”
Should you not direct your attention to what happened to the funding before then? Nationalisation came after Anglo’s, er, weakness became apparent. Some chaps have written books about it.
@ Brian J Goggin
“Should you not direct your attention to what happened to the funding before then? Nationalisation came after Anglo’s, er, weakness became apparent. Some chaps have written books about it.”
Question: what effect has nationalisation had on Anglo’s funding?
Answer: you would seem to accept that it has had no positive effect, correct?
Question: therefore, what is the rationale behind nationalising AIB/BOI?
Question: if there is no positive effect on funding from Anglo, is it possible there has been some negative effect? Ergo, could there not be a negative effect on funding of AIB/BOI?
@ Brian (and perhaps Karl too)
myself, Joe and Rob D have asked a fair question:
the funding of Ango has not improved since nationalisation, and has definitely gotten worse, significantly, since the few weeks/months before nationlisation.
Therefore, on what basis would the nationalisation of AIB/BOI improve from today if we nationalised them tomorrow? Also, if private banks are still lending to them today, how can we describe AIB/BOI as basket cases? If they are not basket cases, why are we nationalising?
re the Then and Now argument – i have long argued that this is a very important and real argument and that if nothing else the non-nationalisation bought us a huge amount of hugely important time to deal with our far more important general fiscal issues.
“on what basis would the nationalisation of AIB/BOI improve from today if we nationalised them tomorrow?”
Is this some sort of trick philosophical question?
I don’t answer for Brian, but I’ve addressed most of these questions ad nauseum. I don’t start typing up 1000 word answers on a Friday evening just because folks imagine I’ve nothing better to do. Click on my name on the blog site and you’ll find lots of posts on all this stuff.
@ Rob D.
“Use the Anglo bill and change the name, perhaps? Or what exactly did you have in mind?”
No Rob, I was proposing changing the name and also printing the bill on flowery pink paper. Much prettier.
“on what basis would the funding of AIB/BOI improve from today if we nationalised them tomorrow?”
However, if you could try and answer the original philosophical question too that would certainly be interesting to read… 🙂
Take a deep breath. Then slowly say “Solvency. Not Liquidity. Solvency”
Do it every day for five minutes and it will work wonders for what ails you.
@Bond. Eoin Bond (any relation to Ollie?)
“you would seem to accept that it has had no positive effect, correct?”
My view is that Anglo is a basket-case. It has been a basket-case for a long time, but it seems to have taken investor-folk quite a while to realise that. However, the light eventually dawned.
Now, you may argue that AIB and BOI are equally basket-like, and far be it from me to disagree with you, but I suggest that the basketicity of Anglo is enough to explain anything that has happened to it in recent times. I hope somebody buries it at a crossroads (perhaps the one where the road to the Dublin Glass Bottle site meets that to the incinerator) with a stake through its heart, but I don’t see that it has any real utility as a model for what might be done to the other pair.
Putting it another way, I won’t be convinced until I see the results of an experiment that assesses the effects of the nationalisation of a good Irish bank.
after taking deep breaths, im still confused as to why other banks are lending to what i assume you are referring to as insolvent banks? Im sure your answer will be that they are governemnt g’teed, but then so was Anglo before it was nationalised, as it is now. As such, i ask again, why wont banks lend to Anglo now? And if, as people above have claimed, if nationalisaiton is often caused by a loss of funding, why should we expect this to return post-nationalisation given the experience of Anglo?
I’d recommend generalising your dataset on nationalised banks beyond this single particular data point.
‘the funding of Ango has not improved since nationalisation, and has definitely gotten worse, significantly, since the few weeks/months before nationlisation.’
I don’t usually look at companies financial statements in detail so forgive me if I’ve looked at this incorrectly. From Anglo’s interim results for 6 months ending 31/3/2009, which takes in pre-guarantee up to post-nationalisation; Total interest expense (in millions) = 1741 on Total Liabilities of 88441, so approximate cost of funding was about 3.94%p.a………..not bad!
Perhaps funding did become more costly after nationalisation, not to a ridiculous degree though. Out of interest is your bank involved in unsecured lending or repo, no need to answer that but i think it would make a big difference in whether you guys would provide funding or not
Just looked at the balance sheet, disregard the repo comment.
does the Anglo funding include repo and other emergency funding from ECB? This is not likely to be “expensive” in a nominal sense given that you can borrow from the ECB @ base+1%.
Re our bank – vast majority of lending is done via repo now, which though obviously coming with a low nominal yield, is not ‘cheap’ given the security you’re putting up against it.
But we provide ZERO funding, repo or otherwise, for Anglo, while providing repo AND uncollaterlised for AIB and BOI.
as previously discussed, and as Joe noted, there’s not a lot of nationalised datasets to go on. However, i’d argue that your “nationalise and we’ll be ok” dataset contains far less in real current data than my “nationalise and you’re gone”.
About 1/3 comes from ECB/CB. Here’s the full note:
Sale and repurchase agreements include €23.5 billion (30 September 2008: €7.6 billion; 31 March 2008: €3.6 billion)
of short term borrowings from central banks. These deposits include €13.5 billion (30 September 2008: €7.6 billion;
31 March 2008: €3.6 billion) borrowed under open market operations from central banks and €10.0 billion
(30 September 2008: €nil; 31 March 2008: €nil) borrowed under a Master Loan Repurchase Agreement (‘MLRA’)
with the Central Bank and Financial Services Authority of Ireland. The interest rate on this facility is set by the Central
Bank and advised at each rollover, and is currently linked to the European Central Bank marginal lending facility rate.
Collateral assigned under these agreements is derived from the Bank’s customer lending assets (note 17).
During the period the Group increased the level of assets eligible for open market operations, primarily through the
establishment of Anglo Irish Mortgage Bank and through the expansion of the Group’s covered bond and CMBS
The decrease in other deposits by banks with agreed maturity dates is attributable to a reduction in interbank activity
due to Bank specific concerns.
In addition, €1.4 billion of term bilateral loan agreements were repaid following the
nationalisation of the Bank as a result of change of control covenants within those loan agreements.
I just noticed the last paragraph, you know anything about this control covenant?
Must say though, I think this shows that liquidity won’t be a problem so long as the ECB is doling out the cash.
I’d recommend generalising your dataset on nationalised banks beyond this single particular data point.
Make sure and flick through that dumb bank-ing blog entry I linked to above. It will give you guys an intellectual framework upon which to hang your various points about national-isation. It will also enable you to adress some deficiencies in your explanation of the national-isation concept. BOH.
control covenants – basically some longer term loans had a clause in them such that if there was a ‘change of ownership’ (which nationalisation would constitute) then the loan would have to be repaid immediately.
As an aside, the statement shows a derivative trading loss of €236m, nice work guys!
“No Rob, I was proposing changing the name and also printing the bill on flowery pink paper. Much prettier.”
It would be helpful if you could set out a broad chronology of how you would have liked things to pan out over the past year on the banking policy front. April 2009, Statuatory nationalisation of AIB and BOI…what then and when?
“So, the bottom like is that one year on – we have nothing. No recapitalisation, no toxic debt out, zombie banks paralysing the economy – a whole policy borne out of an over-riding desire NOT to nationalise.”
I guess the questions are: When should the Government have recapitalised, by how much, and how? And when should the Government have removed the toxic debt, and how?
“I think the point is that if the government hadn’t set its face against nationalisation (pre-emptive, 100%, whatever) and had done it a year ago, we might be much further on.”
Or we might not. It depends in part on the answers to the questions I raised above.
“It would be helpful if you could set out a broad chronology of how you would have liked things to pan out over the past year on the banking policy front. April 2009, Statuatory nationalisation of AIB and BOI…what then and when?”
Right. Because that’s what I did last year. I went around shouting “Statuatory nationalisation! Now!” on the media and in this blog. And hadn’t a clue what else we should do.
If you want to know what I was recommending last April, you don’t need to come on here requesting clarifications. A quick Google search would tell you:
The column does not simply call for statuatory nationalisation.
A month-by-month hypothetical alternative reality would be a complete waste of time. But suffice to say, there were alternatives approaches to what has been followed that would have fixed the banking system quicker and which could already see the government in a position to execute its exit from bank ownership.
@ Karl Whelan,
All the same, what is required from BL and yourself, as of today, is some clarification of where your position is today, this minute. I wrote the blog entry, The Rise of Dumb Bank-ing, to deliberately punch as many holes as I can in what I perceive to be your solution(s), and those forwarded by economics as a profession, to the debate in general.
Seriously Karl, at this stage in the game, unless you begin to brainstorm with a good project manager, and some students/faculty staff from a business school, your ideas will go down as documented novelties in some history books. It is time to brush it up, and come out with a draft business plan. Even a draft announcement with bullet points, would be welcome. BOH.
along the same lines as BOH, i noted previously that i believe, while you respectfully and honestly disagree, that the debate is still somewhat stuck in the past and unable to move on. It is still that (a) we shouldn’t have brought in the g’tee, (b) we should have nationalised a year and a bit ago and (c) NAMA is terribly terribly bad. I know some small elements of the debate have evolved, but i still believe the core issues here for many people on here are still as they were a year ago. Even the notion in Sarah Careys article, that there is no difference between nationalising now vs 12 months ago, is sadly simplistic in my view in this regard. As BOH has said, being where we are right now, whats the ‘updated’ plan? Fighting yesterdays battles won’t help win today’s problems.
@ BoH and Eoin
You guys are joking, right?
Poster after poster comes on here, every time this issue comes up, and wants to raise the question of what would have happened if the banks had been nationalised (pre-emptively!) last year. Particularly those who are in favour of the government’s plan.
I regularly point out that we’d be better off discussing the current situation rather than going over old hypotheticals. I regularly push us towards discussing resolution regimes, bond-holders, regulatory requirements and try to keep people up to date with developments. I reckon nobody knows this better than Eoin.
For instance, in my post on Postbank a few days ago, I said:
“With the September 2008 guarantee set to expire later this year, there is the opportunity in the coming months to arrive at an orderly resolution process in which insolvency is recognised, bad property assets are cleared off the bank balance sheets, providers of risk capital lose money in a way the reduces cost for the taxpayer, and the banks are placed back on a sound footing.
These are very important decisions and the sooner our more influential journalists recognise what the real issues are, the better the public debate will be.”
But no. Apparently, I’m just pissed off I didn’t get my way last year.
Truly guys, get a grip.
And Brian, I’ve got plenty of intellectual frameworks to be getting on with already.
“draft announcements with bullet points”?
What about a glossy brochure? And a launch at the Mansion House? Maybe I’ll get Terry Prone in for the PR!
Apparently people think I’ve become a political party.
I’ve never been in any way coy about my positions. And I write on this stuff, like, waaaaay too often given my other responsibilities (teaching, admin of an MA and a PhD program, research and other commitments). If you guys don’t know what my position on the relevant issues are, click on my name on the blog and read a few posts.
in an effort to move the debate on, how much of the following would you agree with?
*do a stress test of the banks..BOI/AIB/Anglo…at this stage it should be quick
*buy the assets of banks at market value or value the banks at market
*banks are deemed insolvent, equity is valued at zero
*banks are nationalised
Then what do you do?
*is it as follows…banks need say 20bn to restore equit cap to acceptable levels
*we sell what we can to recoup some
*we tell subbies that we are not paying them back
*we put up rates and charges to increase Pre prov. profits
*we make 20% of the bank workforce redundant
*we inject x amount og govt equity
How much of this am I not getting?
With a few wrinkles coming from events and the expiry of the guarantee growing ever closer, this has been roughly my position since last summer.
Apologies for not printing it off on t-shirts and selling them on O’Connell Street.
@ Karl Whelan,
It is worth making some points about Terry Prone actually. I listened to Terry Prone on The Late Debate recently, and she made an important point. A point which I don’t think other guests that evening on the radio program were sophisticated enough to pick up. It is an international trend actually. Nick Carr writes about it a good deal. In the modern world today, there is less and less, in the business model for journalism that can go towards investigative journalism. Maybe this is a point Sarah Carey is hinting at. In the absence of Woodward and Bernstein, a sort of blog/columnist hybrid seems to be plugging the gap (for the time being). But Terry Prone’s argument on The Late Debate, was more bluntly put than any of this. She simply observed, in Ireland, there is no motivation left in journalism to undertake difficult work. Journalism is pandering to the public’s insatiable appetite for the next riveting scandal. John Waters dealt with it in his last column, Our bouts of outrage are mockery of real ethics. In today’s Irish Times newspaper, Conor Brady, editor of The Irish Times from 1986 to 2002, reports on the ‘Covering the Crisis’ recent two-day seminar organised in Brussels by the European Journalism Centre. Basically, no Woodward and Bernstein, and Remember when you were hungry? Maybe Karl Whelan is hungry, but that is not enough. He has a day job, and so does BL. In my own field for instance, construction, I hear Frank McDonald on radio or on PrimeTime. McDonald was doing that decades ago. Where is his equivalent today in the younger generation? I will not subtract anything from the Irish Economy effort to date. But it does appear a lot of the resources in media and journalism in Ireland, depend too much on the good nature and hard work ethic of our leading academic economists. Maybe, the Irish Economy blog shouldn’t attempt to plug that gap in journalism, I refer to above? There is one to chew on. As I said in my blog entry, The Rise of Dumb Bank-ing, I would love to see economics address the problems of being insular. I would like to see the economics debate move away from being a debate amongst economists, and allow a wider spectrum of disciplines to take a swing at your proposal(s). Even if they were only bullet point(s). BOH.
Off to have a glass of wine. But quick answers below. Won’t be replying tonight.
Declare banks insolvent and put in resolution regime. (Set up some compensation scheme for shareholders if you want but this will tell you they’re worth nothing.)
Quick negotiations with bondholders based on ability to not renew guarantee in September.
Look for private equity but most likely prepare for state control of the banks recapping with funds from NPRF.
I’ve no problem with a NAMA once we’re not using it to prop up current shareholders and protect the subbies.
Hire the best management you can get and incentivise them to get the best possible return on privatisation.
Also, I came down hard upon BL recently, for The Frontline, debate. I know it wasn’t fair, but my reason was to point out – why should a professional economist who has a full time job, have to take it upon him or her self to mount an entire opposition to government? What does that tell us about the society we live in today in Ireland, and how willing are the remainder of the population, to question or to propose?
I did enjoy, Richard Pine’s column in yesterday’s Irish Times, Greece is a real country – unlike Ireland. Again, Mr. Pine was a journalist, like Conor Brady, in Ireland many years ago. Does anyone see the trend here? Namely, what kind of a society has Ireland become, when bloggers are the last line of our defences? In any case, everyone should read Mr. Pine’s column. Mr. Pine is a resident of Greece these days and was filling in for John Waters. BOH.
“there were alternatives approaches to what has been followed that would have fixed the banking system quicker and which could already see the government in a position to execute its exit from bank ownership.”
But would it? Let’s have a look at the approach you suggested:
Step 1: Statuatory nationalisation of AIB and BOI in April 2009.
Step 2: “Reorganise: Use taxpayer money to buy the bad assets from the nationalised banks at their fair value as estimated by a team of property experts. Then set up a State asset management company to sell these assets over time..”
The order of Step 2 is surely backwards, no?. I think what you meant is: set up a up a State asset management company and then have that company buy the bad assets and sell over time.
Now, could you please explain how that State asset management company could have been set up any faster than NAMA? Would the legislation setting it up not have to had passed through the Dail?
Also, are you sure that the EU Commission would have allowed the transfer of loans to your asset management company to take place without the assets being individually valued, as per the EU guideslines? That the transfer would have been between a nationalised bank and a State asset company is irrelevant. A nationalised German car maker, for example, could not accept an arbitrary amount of money from the German government, even though it would be a transfer from one State institution to another. After all, German car makers compete with Italian and French car makers. So EU competition rules would apply. Ditto for asset relief schemes.
I would strongly suggest that your approach would still be at Step 2 today, awaiting loan-by-loan valuations as per EU rules, with your Step 3 (recapitalisation) to follow over coming months.
In what sense, then, would your approach “have fixed the banking system quicker”?
@ Karl Whelan
Could you please let Brian Lucey know that you were, in fact, recommending statuatory nationalisation of AIB and BOI last April. He doesn’t seem to realise that:
Brian Lucey wrote on 27 February 2010 :
“Slide 11 is one of the more disingenuous slides. Who pray tell was asking for statuatory pre-emptive takeovers? Maybe the labour party but I think that this is deliberate political watermuddying”
I already addressed the EC issue in this very thread.
And I’m afraid I only speak for myself here — the article I referred you to was by me. I don’t speak for Brian Lucey or anyone else.
In any case, I think I’ve addressed your earlier point that there was no plan beyond nationalising banks. And I’ve had enough of the trolling for now, so I’m closing this thread.
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