Would borrowers have been better off if the State did not rescue the Banks?

[Luachara]

Would borrowers have been better off if the State did not rescue the Banks?

Trichet's instruction to The late Brian Lenehan to "Save your banks" had a huge impact on th ecourse of people's lives.

What he really meant was Save our Banks (in europe). Ha the Banks been let go and the bondholders alloed to pick over the carcasses it would have left borrowers in a postition where thay could have negotiated writedowns with the bondholders on loan levels and rates that were attractive to borrowers to hang in there.

The mechanism that was set up was aimed at sweating the maximum from the mess. Am I alone in this view and that the economy would do better with such a writedown?

[Cynicist]

Because Irish households have the higest borrowing rates in Europe, we have lost any influence on the matter which otherwise may have applied.

[drummed]

Don't forget the cost of compensating the savers. Unless you plan to burn them too.
If a pensioner spent their whole lives saving a little each week for retirement their cash is gone too.

[Luachara]

Don't forget the cost of compensating the savers. Unless you plan to burn them too.
If a pensioner spent their whole lives saving a little each week for retirement their cash is gone too.

The savers only funded about 25% of the banks lending!

[Analyzer]

On aggregate, Ireland as a whole would have been worse off if the banks were closed down.

Simply because the debt owing to the institutions concerned would have been owing to dissolved has beens.

But Lenihan would never have been able to put on the Green jersey, and "save our financial reputation".

[Luachara]

Don't forget the cost of compensating the savers. Unless you plan to burn them too.
If a pensioner spent their whole lives saving a little each week for retirement their cash is gone too.

But the depositors would have had first call on the banks funds!

Why do the Share holders still exist?

[Ribeye]

Would borrowers have been better off if the State did not rescue the Banks?

Trichet's instruction to The late Brian Lenehan to "Save your banks" had a huge impact on th ecourse of people's lives.

What he really meant was Save our Banks (in europe). Ha the Banks been let go and the bondholders alloed to pick over the carcasses it would have left borrowers in a postition where thay could have negotiated writedowns with the bondholders on loan levels and rates that were attractive to borrowers to hang in there.

The mechanism that was set up was aimed at sweating the maximum from the mess. Am I alone in this view and that the economy would do better with such a writedown?

You are 100% correct Lu,

The system has inbuilt hidden automatic stabilisers to cope with with event like our property bubble,

What should have happened is as follows,

- Irish property bubble goes pop
- Irish banks collapse and are forced into receivership by the bondholders
- shareholders and depositors are wiped out (ex govt gteed sums)
- the receivers quickly realise that the banks don't have a hope and move from receivership to liquidation.
- the assets (loans) of the banks are sold ien masse into the distressed debt market for whatever the best price is, in our case probably about 20 cent on the euro due to the terrible economy and sloppy loan documentation,
- the bondholders in Europe get there 20 cent and then pick up the phone and ring AIG to request payment of the other 80 cent under the bond insurance contract, the guy in AIG starts to cry and starts looking for Tim geithners phone number!
- the now empty offices and branches of the banks are quickly snapped up for a pittance by a couple of ambitious foreign banks and begin trading
- the new owners of the loans open some small unassuming offices in Dublin, cork and Galway and begin negotiating with the borrowers,
- the borrowers soon realise that these new people don't care about what the original loan amount was, they only care about the amount that they paid for it,
- the borrowers begin to approach the new banks and secure new mortgages for about 30 or 40% of the origonal loan amount, which the then offer to the new owners of their mortgage,
- the offers are of course accepted and the system is cleaned out of toxic debt in two shakes of a lambs tail,

And save for having to pay out on the stupid govt deposit gtee, the whole mess didn't cost the taxpayer a penny, nice eh!

[DownTheyGo]

Would borrowers have been better off if the State did not rescue the Banks?

Trichet's instruction to The late Brian Lenehan to "Save your banks" had a huge impact on th ecourse of people's lives.

What he really meant was Save our Banks (in europe). Ha the Banks been let go and the bondholders alloed to pick over the carcasses it would have left borrowers in a postition where thay could have negotiated writedowns with the bondholders on loan levels and rates that were attractive to borrowers to hang in there.

The mechanism that was set up was aimed at sweating the maximum from the mess. Am I alone in this view and that the economy would do better with such a writedown?

All the State (Government) needed to do was guarantee deposits, nothing else.

But they didn't do that. Clearly bank deposits was not where the establishment was planted.

Yet, it was all they had to do....! At that, perhaps even more than necessary.

The last government and this one, are taking Irish people to the cleaners for some other reason, feel free to speculate why that is..!

[Luachara]

No one in the Government seems to be acknowledgeing that the Bondholders were likely to have been covered with CDS's!

[DownTheyGo]

No one in the Government seems to be acknowledgeing that the Bondholders were likely to have been covered with CDS's!

This is not true. Only a very small percentile had CDS.