I already addressed the EC issue in this very thread.
http://www.irisheconomy.ie/index.php/2010/03/03/slide-11/#comment-38302

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.

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”

http://www.irisheconomy.ie/index.php/2010/02/27/ministers-speech-at-taxation-institute/#comments

“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:

http://www.irishtimes.com/newspaper/finance/2009/0403/1224243926311.html

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”?

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?

http://www.irisheconomy.ie/index.php/2010/03/02/postbank-and-anglo-not-comparable/#comment-38008

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.

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.

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.

http://www.irisheconomy.ie/index.php/2009/07/28/not-too-late-for-a-different-approach-to-the-banking-crisis/

Apologies for not printing it off on t-shirts and selling them on O’Connell Street.

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.

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.

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.

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.

“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:
http://www.irishtimes.com/newspaper/finance/2009/0403/1224243926311.html

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.

“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.

“No Rob, I was proposing changing the name and also printing the bill on flowery pink paper. Much prettier.”

That’s funny.

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?

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.

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.

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
programmes.

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.

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.

@ Karl

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”.

‘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

I’d recommend generalising your dataset on nationalised banks beyond this single particular data point.

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?

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.

bjg

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.

oops

“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…

“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?

@ Joe

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.