Tax payer to bail out banks and bond holders to tune of 90 billion +

[JohnCallaghanWill]

Hi Guys,

So this national asset agency takes over the banks toxic debts at a "knockdown" price? Some saying buying the debt at 30% of the value. The agency takes over the debt at this lower price, pays the banks who then are in effect out of the picture, off to nurse their wounds and to "move on" without toxic debt to worry about anymore?

The agency now has this debt, do they go about recouping this debt? From who? The original people who caused the debt - the developers? How much do they TRY and get back from these guys? The "Knockdown" amount only - that is only 30% of the amount the developer originally owed? If so these guys have just got pretty much away with lions share of the debt owed, yes /no?

More than likely these debts are owed by SEPERATE LIMITED COMPANIES anyway, created originally for that specific project? What happens WHEN this company is wound up/bankrupted if not already? Now the gov / Irish joe/mary citizen owns a load of worthless farm land? Maybe the gov could now store the e-voting machines in rent free accomodation, we wil now own loads of it ..

Does that sum things up a bit OR am I talking bulls**t?

Aidan

Who pays the other 70%

[MsAnneThrope]

I am new here so apologies if this question has been asked before and please excuse my economic and perhaps mathematical ignorance, but I am trying hard to understand how the new 'toxic assets' agency (TAA) is going to work. Perhaps nobody knows yet as the details are not yet clear but let me present a simple hypothetical situation (in reality the numbers of properties and values involved will have a few zeros added but I'm trying to keep it simple).

Here is the scenario...

A brand new young buck developer borrows €2.5 million from a bank and builds a small estate of say 10 houses in early 2008. So each house will cost €250,000 to build. Each house is to be sold for €500,000 but the slowdown has kicked in and none of the houses sell. He tries sell them at 450k, then 400k, but still no takers. He is unable to repay the bank. The TAA decides to take over this 2.5 million bad debt off the bank's books.

The TAA decides that each house is only worth 250k (half the original asking price) taking into account todays property prices, continuous deterioration of said prices and other factors. But for simplicity's sake lets say they agree its only worth 250k.

Question 1: Isn't the TAA's relieving the bank of this 2.5 million debt the same as simply paying the bank back the original 2.5 million (so the bank breaks even), taking ownership of the houses and then pursuing the developer for the original 2.5 million loan? So theoretically the TAA could make a sweet deal if the developer repays the full amount, however unlikely this may be in reality? If the developer defaulted completely the TAA still has 10 houses that are worth 250k each. Or is there something I am missing here?

Question 2: Is the TAA the only one responsible for pursuing the developer for the original loan? Why aren't the banks responsible for this, even in part? Its widely known that it is very expensive to pursue defaulters via the legal system and courts, as no doubt many will end up there.

Question 3: Lets say the TAA does end up with these 10 houses worth 250k each. What is to stop the original bank, or developer, or their cronys, setting up a new company and buying the houses back from the TAA for say 275k and selling them on again at a mark-up of say 25k per house? So new house price is 300k. If the banks are relieved of their debts and are liquid enough (perhaps after further Government cash injections) to ease their mortgage approval process could they not restart the whole insane cycle again, especially with ECB interest rates at record lows? It could be very tempting for potential buyers to see a house that was 'worth' 500k now for sale at 300k and with very low interest rates. The banks gain by easing credit thus driving prices up again (one of the biggest factors in the last bubble) so the house they just paid 275k to the TAA for could now be dressed up to be worth 300k, plus they make on the mortgages they issue. Even in periods of recession and rising unemployment there will still be people in good jobs who want to buy houses. Just not as many obviously. The developer finally sells his houses and makes a profit too (but more importantly avoids isolvency/bankruptcy) and theoretically the TAA makes a small 'profit' of 25k (in this example) per house.

What have I overlooked? I just cant seem to get my head around how the whole thing will work and whether we're just going to re-invent another very rusty wheel of property price speculation. Or, putting on a conspiracy hat, is this the underlying intent? I'm guessing commercial property is an entirely different kettle of fish or perhaps a basket-case altogether, or are there sharks out there will make a killing and big profits in commercial property at our (the tax payers) expense. I just cant see the demand for commercial property in the near future. But is residential property ripe for cherry-picking by special interest groups or vested interests to profit from the bailouts? Ireland being so small its quite likely the people involved will be the same as those who got us here in the first place.

I hope my questions make sense and thanks in advance to all who reply. I appreciate it.

[mollox]

Tax payer to bail out banks and bond holders to tune of 90 billion +

[SIZE="5"]Share holders get to keep shares in banks[/SIZE]

[SIZE="6"]This is a con con con, wrong wrong wrong[/SIZE]

It looks like the new agency will take over ALL commercial property-related loans, the good ones as well as the bad ones.

This will lead to the interesting situation where the agency will be obliged to pay more than 100% of the face value of the good loans to compensate for the profit foregone by the banks on those loans. (Just as they'll pay less than 100% on the bad loans in anticipation of the losses that are likely to arise.)

Imagine the furore on p.ie and the media when this fact emerges!