Any creative solutions to banking crisis?

[patslatt]

The government did not address the need for bank recapitalisations,hoping that banks could profitably trade their way out the problem over time. This hope could be wildly optimistic,given the crash in bank share prices.

What is to be done? I suggest:

[]Instead of buying shares of banks,the government should guarantee a seven year return on investment to shareholders who participate in a series of rights issues. Let's say the shares are issued at €10 a share and with a partial recapitalisation of the bank from the share issue proceeds,it is estimated that investors require a return on investment of 15% a year over the next seven years. Let's assume no dividends are paid.

The government would be liable to pay out to shareholders if the value of the shares were less than the 15% return to €26.60 a share seven years hence. If the shares were trading at $20 a share,the government would have to pay $6.60 a share (ie €26.60-20)*. If the shares were trading at more than €26.60,the government could tax the excess with a special capital gains tax.

The seven year time horizon would take a lot of pressure off the government finances and give the banks time to do workouts on problem loans.

[]To prevent any further bank loans to large zombies developments, the government should seek the help of hundreds of development industry insiders to identify those developments. The guarantee of any further loans to them should be set at close to punitive market rates for credit default swaps,which should deter banks from any further lending to them.

[]Rationalisation of lending is probably needed to prevent a Japanese style banking crisis that resulted in a lost decade of economic growth. It is needed to shut down unviable banks and realistically value balance sheets so that interbank lending among the remaining viable banks can resume without fear of a catastrophic default.

*Regarding some more of the details,the guarantee could apply to shareholders participating in the rights issue and,for the sake of administrative simplicity,who hold until year seven. They would want to sell in year seven if they expected the shares to drop below the guaranteed price at the start of year 8 in which the guarantee would no longer apply.

[JollyRedGiant]

Nationalise them - and all the building companies and the property developers. And then use the vacant housing stock for reducing the local autority housing waiting lists (which number 10's of thousands) and for housing the homeless (who number thousands).

[wysiwyg]

Shoot the bastards...

[20000miles]

-Abolish central banks and fractional reserve banking
-abolish fiat currency
-try laissez faire capitalism for a change

[goldleader]

Buy a handgun and rob all the banks

[michael1965]

The government did not address the need for bank recapitalisations,hoping that banks could profitably trade their way out the problem over time. This hope could be wildly optimistic,given the crash in bank share prices.

Why is the crash in banks share price seen as a problem? It has nothing to do with the banks' liquidity or capitalisation or solvency.

It does however, make the existing shareholders vulnerable, should the bank actually need to raise new capital. If a bank has lost most of its shareholder value, then each billion of new capital, buys a bigger share of the bank, than it would have previously. Bad news for the shareholders, but what about the tax payer? Surely, it represents potentially a great deal for the tax-payer, since (in normal times) these are incredibly profitable businesses being bought on the cheap, now that times are hard.

[Comhairle]

While I do agree with bailing out the banks because everything in the country relies on them. I do not agree with keeping the CEO's and executives gigantic pay salaries. Infact their heads should role along with the Financial Regulators'.

The solution is bail out the banks , let heads role, dock management pay and bill the banks a couple of billion euro for saving them. That extra couple of billion could go to closing the already enormous deficit instead of charging the OAP's and Kids.

[ZANU-FF]

Patslatt! - Are you Mr. Sheehy, Mr. Goggins or Mr. Drumm signing in under a pseudonym?

Are you seriously asking the taxpayer to guarantee a rights issue by private banks?

Let me explain whats going to happen:

The property slump (which has yet to come btw) will wipe out most if not all the banks
The banks will be nationalised
The shareholders will be wiped out

In my opinion, the banks should not be saved, there are alternatives for conducting business - the post office system could have a computer system rollout and could handle swift/iban transfers

Only deposits in banks should be guaranteed by the government, the guarantee as signed (loans) is financial ruin for our grandchildren

[patslatt]

Why is the crash in banks share price seen as a problem? It has nothing to do with the banks' liquidity or capitalisation or solvency.

It does however, make the existing shareholders vulnerable, should the bank actually need to raise new capital. If a bank has lost most of its shareholder value, then each billion of new capital, buys a bigger share of the bank, than it would have previously. Bad news for the shareholders, but what about the tax payer? Surely, it represents potentially a great deal for the tax-payer, since (in normal times) these are incredibly profitable businesses being bought on the cheap, now that times are hard.

The crash in bank shares shows that that the market players don't trust bank balance sheet valuations of property related loans. The market is usually more right than management PR happytalk in the case of severe share price drops,though in stockmarket panics like the present one share prices undershoot long term trendline valuations.

[KingKane]

An idea (but perhaps a crazy one) is to let inflation run riot.