The bank guarantee & NAMA; What if?

[Gobuchul]

I am a financial no hoper and can't seem to get my head around certain things. (Please no abuse, if the question is stupid, then don't respond)

If when this global crash happened, our government had not stepped in with the bank guarantee, what would have been the consequences for ireland?

Would AIB and BOI have collapsed? Would it make our current situation any better or worse? If there were no Irish banks, what does that actually mean? wouldn't some big foreign bank just fill the void? What would have happened to all the deposits in those banks?

When NAMA buys all of these toxic loans from the banks, wont the banks just have realised a potential debt and make things worse. when the government buy them wont they just be left with a great big hole in their books and require more money from somewhere?

[yehbut_nobut]

good question. As another economic "beginner", I've wondered that too. I imagine it might have been nasty at the time (no cash in ATMs, branches closed, cheques uncashed and uncashable etc.)

But where would we be now at this stage, more than 10 months on after the nasties?

[Gimpanzee]

If when this global crash happened, our government had not stepped iith the bank guarantee, what would have been the consequences for ireland?

Don't believe a word that anyone who answers this tells you. Impossible to know given how fluid the situation was.

Would AIB and BOI have collapsed? Would it make our current situation any better or worse? If there were no Irish banks, what does that actually mean? wouldn't some big foreign bank just fill the void? What would have happened to all the deposits in those banks?

Maybe. Depends if they were let collapse. Would it be any worse or better? My guess is that we wouldn't be able to discern the difference.

When NAMA buys all of these toxic loans from the banks, wont the banks just have realised a potential debt and make things worse. when the government buy them wont they just be left with a great big hole in their books and require more money from somewhere?

Yes. Fancy a guess where? In NAMAland, the more we overpay for the loans, the less we have to put into the banks.

[Gobuchul]

That's one of the things that confuses me.
Am I right that what ever the method (Whether it be NAMA or just a bigger bailout), we need to keep pumping more money into the banks, until they are satisfied?

Why couldn't a healthy bank be set up with the 60 billion and let it get the credit flowing into the economy, directly to business that are viable, but need credit?

[cactusflower]

When NAMA buys all of these toxic loans from the banks, wont the banks just have realised a potential debt and make things worse. when the government buy them wont they just be left with a great big hole in their books and require more money from somewhere?

The banks may well have difficulties in dealing with a "haircut".

[Libero]

That's one of the things that confuses me.
Am I right that what ever the method (Whether it be NAMA or just a bigger bailout), we need to keep pumping more money into the banks, until they are satisfied?

Why couldn't a healthy bank be set up with the 60 billion and let it get the credit flowing into the economy, directly to business that are viable, but need credit?

Yes, but you'd have to be a brave politician to explain the following...
1) The resulting inconvenience as existing banks collapse and accounts have to be transferred
2) Tens of thousands of job losses in the existing banks
3) If depositors want to cash out from existing insolvent banks (where they are guaranteed), realising the hard cash
4) Being blamed for all resulting technical problems and poor service
5) Inadequate competition and service levels in a market dominated by a big state bank
6) An international financial world that sees us as promise-breakers, having gone back on the guarantee
7) A horde of angry, rich, well-connected people

Of course, all those things and more, totalled together, may be a lot less damaging than proceeding with the multi-generational costs of NAMA.

But again, you'd be a brave politician to take all the hassle upfront rather than opt for NAMA, which conveniently kicks the ball (bank insolvency) down the road.

Fine Gael's plan isn't a bad compromise between avoiding the effects of an outright collapse of existing banks while actually letting them collapse (at least from a creditors point of view).

[turdsl]

That's one of the things that confuses me.
Am I right that what ever the method (Whether it be NAMA or just a bigger bailout), we need to keep pumping more money into the banks, until they are satisfied?

Why couldn't a healthy bank be set up with the 60 billion and let it get the credit flowing into the economy, directly to business that are viable, but need credit?

I believe they should have used the post offices which has a network around the country,Not one economist knows how much money will have to be put into those banks.

[Gimpanzee]

Why couldn't a healthy bank be set up with the 60 billion and let it get the credit flowing into the economy, directly to business that are viable, but need credit?

there's a significant problem right there. We don't have 60bn. NAMA buys us time. At least, that's glass half full interpretation.

[gaffer falls]

And why are deposits deemed sacrosant? I agree this is money net of tax but if taxes have to increase on future earnings to bail out the banks, why not a tax on deposits to even things out?Why are depositors immune from haircuts?They also deposited money to get a bigger return with risky banks.And if you want to start a run well you can take out your money less this tax.

[BrendanGalway]

Since this is the official "Everything you wanted to know about Banking but were afraid to ask" thread, how much money is on Deposit in this country by Irish citizens and instiutions of all sizes? At the time of bank guarantee, I heard it was in the region of €400 billion.

Since we are in drastic Legislation land with NAMA, how hard would it be to create a new Bank using this 400bn, using legislation that would pull all deposit money away from banks covered under the guarantee? In a single day?

Im aware of the difficulties presented by Runs on a bank but no physical money would be changing hands. If its one thing I learned from this recession, its how much of of the worlds financial system is based on numbers in cyberspace. "Who cares if theres money in the vault or not? My computer is showing pretty big figures. Thats all you need to know. Have faith. Trust us."

If such sleight of hand already rules the financial world, what to stop a plan like the above?