nationalise the banks now say economists

[BodyofEvidence]

Not riled at all - I'm genuinely interested if there's something I'm missing. (Although I know some of my posts on other topics have cause folk to compare me to Hannibal Lector).

I just find the clear entry point to these obligations we're taking on to be missing. I mean, I expect the sentence I highlighted was probably just a throwaway. I'd guess the guarantee probably does mean we're tied in regardless, so maybe they didn't see a point in delaying over it. But I would expect, at a minimum, that we should at least be clear as to whether there is a real problem or just a perception - this might seem pedantic, but I feel the lack of precision is worrying when we're talking about such a considerable financial undertaking.Indeed, this is the worry. Our Government come out with so much patently false comment that it provokes scepticism about the whole package. I mean, if INBS is being asserted to be systemic, it leaves very little confidence in how rigorously NAMA will be valuing the loans it takes on.

pat kenny hsow this morning, 1.43 in.....worth listening to.

[diablo]

Schulart : i didnt want to rile you, but the article to me seems to state the bleedin obvious. If we assume that we want functoning banks, whatever the cause of the problem, then its nationalisation. Etc etc.

Anyhow : sure cowan says that INBS is systemically important, so these academics what do they know

Systemically in this context means that if they nationalise INBS, the whole house of cards comes down. It's nationalise none or all.

[cactusflower]

Cowen would say that Fingleton's piggy bank was systemic.

[cyberianpan]

The more I think about this ... the more I realise these chaps are 100% right

We are where we are ... a nationalisation makes sense

1) Otherwise NAMA is going to have a ridiculous time in trying to price the loan assets

2) NAMA will end up owning nearly all the bank assets and will itself be a huge bank ... there'd be huge risk & administrative cost in setting up NAMA

3) And almost no matter what way that game plays out the banks will need re-capitalisation ...

And as the nice economists point out

4) So what that we lose the stock market price monitoring: no international investor believes us anyway and stock markets are not able to price effectively

5) Then we'd have proper control of the banks

The more I look at their clear minded analysis (and they've socialists, libertarians etc) - the more I get concerned as to whether the government rushed NAMA ...

The market cap of AIB & BOI together comes to a little over €1.5billion ... even allowing a premium €6billion would buy all the banks right now ... that is far more attractive than saya 10% margin of error on buying €90billion worth of loans ...

cYp

[youngdan]

1) Otherwise NAMA is going to have a ridiculous time in trying to price the loan assets

2)

The market cap of AIB & BOI together comes to a little over €1.5billion ... even allowing a premium €6billion would buy all the banks right now ... that is far more attractive than saya 10% margin of error on buying €90billion worth of loans ...

cYp

There is no problem pricing the debt. It is 80 billion.

If the government bought all the shares Monday, they still have to come up with 80 billion for the debt

[cyberianpan]

There is no problem pricing the debt. It is 80 billion.

If the government bought all the shares Monday, they still have to come up with 80 billion for the debt

The loan assets:

A) Promise to repay principal=€90billion

Then there's B) interest C) bad debts

In a normal world with no bad debts the loan assets would price like government bonds (based solely on the interest). We now don't know what the price is as we haven't a rashers re the potential bad debts.

And yes if the government bought the banks it would have to maintain their capital adequacy - and this would be as simple as injecting into the banks what they write off in bad debts over say the next decade

Setting up NAMA is trying to guess all of the write offs in advance ... that's the problem

cYp

[youngdan]

Will be back but they must pay about 80 billion because paying less would bankrupt the banks if they had a bigger writedown. Value or driving a bargain to get the best deal is not part of the equation

[cyberianpan]

Will be back but they must pay about 80 billion because paying less would bankrupt the banks if they had a bigger writedown. Value or driving a bargain to get the best deal is not part of the equation

Just to clarify my phrase:

And yes if the government bought the banks it would have to maintain their capital adequacy - and this would be as simple as injecting into the banks what they write off in bad debts over say the next decade

By this I mean they inject in new share capital to match the write offs as/after they do them ... not upfront

cYp

[youngdan]

They are both shell games. The nama route has an extra layer or two of smoke and mirrors to hide the fact that the government has no money.

Nationalise them and a run would likely start immediately and the jig would be up.

[cyberianpan]

They are both shell games. The nama route has an extra layer or two of smoke and mirrors to hide the fact that the government has no money.

Nationalise them and a run would likely start immediately and the jig would be up.

I'd also like to examine the bank's funding... some of the folks on the wholesale market who gave them money should get burnt

cYp