McWilliams - Anglo €4bn digout copperfastens Ireland's"pariah status"

[anewbeginning]

I read a post on this site from someone, oh yeh, goosebump, that we should just take the 4 billion out of our national pension reserve fund.

Wtf? The national pension reserve fund is not FF's personal piggy bank to be used to cover up banking corruption.

And of course how do we plug the hole that creates in the pension reserve fund? By borrowing of course. Any way you look at it, this 4 billion will have to be borrowed and added to the national debt, in this McWilliams is correct.

FF mustn't be allowed touch the pension reserve fund, because the clown Cowen will probably end up putting a massive hole in the pensions fund, just to help his Fianna Fail friends.

[patslatt]

David's use of the term 'bank' is quite helpful

Anglo + it's top 5,000 clients was indeed something like a hedge fund ... the clients got loans to invest in development properties ... often unsecured loans ... the development properties were developed by consortia who banked with Anglo... the whole place was a highly geared hedge fund outfit

The problem is that the Financial Regulator said it was a bank ... so it got billions of funding from other banks - Simply letting it go bust is not an option

So we need to disentangle the stakeholders who should be wiped out (by letting it go to the wall) and the stakeholders who were fooled by the inadequacies of our Financial Regulator

cYp

Didn't the government guarantee allow most of the commercial lenders to Anglo off the hook,except those with loans maturing beyond Oct,2010,the expiry date of the guarantee?

[patslatt]

So, are you suggesting banks should be incorporated into the public sector future as a matter of principle? Or should banking basically operate in the private sector?

Anyway, with technology and online-commerce, more and more physically-located banks are for the high jump. The online model of banking will do for most Irish banks, as properly regulated foreign banks with whom you'd prefer to entrust your money force most of the Irish jokers out of the market. (We'll still have one or two indigenous banks alright, but the days of 7 "banks" are over).

We've had the opportunity to run our affairs as an independent state for a long time now, and both government and business have shown themselves to a large extent incapable of delivering to the public and the consumer. It's difficult enough to maintain taxpayer support for the public sector. So any attempt to cosset the private sector with sweetheart deals and special pleading will inevitably fall on deaf ears. And this is how it should be.

In the US,there is a trend back to local banks that know their customers. This works well with business lending as about three quarters of the loan problems occur after the loan is made.

[cyberianpan]

Didn't the government guarantee allow most of the commercial lenders to Anglo off the hook,except those with loans maturing beyond Oct,2010,the expiry date of the guarantee?

Well yes, and that was point of it. It is still in effect , thus Anglo are still raising money on the short term (including overnight) markets - though it seems that they may be raising a lot of this from the "lender of last resort"

cYp

[patslatt]

Beyond Anglo though, the Central Bank report the other day went almost entirely ignored. I suppose people didn't understand the consequences. Anyway, the total amount of credit outstanding in Ireland (the total of all loans out there) fell by €1.5bn in April.

Which of course must happen, we are far too highly indebted and this recession will not end until we've made a serious dent in that huge big pile of debts. So it's a good thing for the people and the country in general.

But it's a very very bad thing for the existing banks. The fractional-reserve money-as-debt system MUST have ever-increasing amounts of debt in the system in order to survive.

If this becomes a long-standing trend - and it will, and it must - then the entire existing Irish banking system is kaput. Bust. Insolvent. Broken business model, unprofitable, unsustainable, cannot survive.

And once word gets out that we've entered a period of credit deflation to go along with our existing money supply deflation and price deflation then nobody is going to lend a red cent to any of the existing Irish banks.

What this means is that now the Guarantee will be called in, because one by one all the existing banks are going down. They'll all be bust within 18 months maximum, and the first will start to fail towards the end of the year.

And once the markets think this through, they won't lend any more to the State either, because any money they lend to the State will just get blown on the Guarantee.

Game over. The window of opportunity has closed.

A drop in money supply is the inverse of a drop in credit outstanding on the banking system balance sheet.As I understand it, if at some point bad debt writeoffs of say 5 billions can't be offset by raising new bank capital to keep up Basil capital ratios,those billions in losses will force the bank to curb credit by 4.5 billion given a reserve ratio of say 10%. The contraction of credit in this bank has a multiplier effect on the banking system. The bank customers whose credit contracts by 4.5 billion will cut spending by that amount,which in turn will cut spending by their customers and those customers' customers. Total credit in the banking system will contract by a multiplier of 10 x 4.5 = 45 billion. If bad loans in the system are say €30 billion,some of that could be offset by raising new capital but the contraction in credit would be potentially disastrous. Private sector credit is now about €395 billions,see financial sector in http://www.econstats.com/global/sdds...ta_Ireland.htm

[bazlad]

If letting a bank go bust is not an option , would the consequential logic say that banks should not be operating in the free market. This is not an ideologically inspired view - I actually believe that banks, for sound pragmatic reasons, belong in the private sector - but then I also believe that they should be allowed to fail.
On another point, when we hear of the need to keep the international markets happy, who or what exactly are we referring to? Is it other banks - who themselves owe money on the inter-bank market ... to other banks ... who in turn are owed and owe money to other banks !!! Anybody get my drift? Does anybody really understand what is going on - is it not perfectly obvious that the bankers themselves lack basic numeracy skills?

Extremely clear logic!
i would like to know the meaning of the word systemic, when repeated over and over again by lenihan. If something is 'systemic' is should never be allowed out of state control, like the roads or the electricity grid.
Does lenihan think that repeating a word over and over will make people think he actually knows what it means?

[cd27]

Is there any way, even at this late stage, to avoid the systematic catastrophe being visited on us by our appalling government?

IT has already happened, the ECB are buying our bonds, we are being bailed out because we are bankrupt...all this to pay for over priced government services.

Great article by McWilliams, sets out the issues clearly for people to understand.

[McDave]

High time for State to make a killing - Anglo Irish Bank - The Irish Times - Mon, Jun 08, 2009