I don't believe the OPs question has actually been answered yet (where is the money invested in Anglo going).
Apologies for over-simplfying, but the answer to this is that Anglo are:
1) selling a large number of its loans to NAMA at a value way below the amount actually lent to the customer originally (the "haircut"). This crystallises an actual loss.
2) reducing the estimate of how much customers who loans aren't transferring to NAMA will eventually pay back (bad debt "provision"). Harder to estimate than 1), but still creates a hole in the accounts that needs to be filled.
Banks are required to hold a certain amount of cash (or near cash equivalents) to ensure its depositors and bondholders can get paid ("capital"). Because of one and two, and because the percentage of minimum capital banks must hold has been increased by regulatory bodies as a result of the crisis, the Government has been forced to inject money to ensure Anglo's capital ratios are maintained and that ultimately bondholders AND depositors can be assured of getting their money back.
If Anglo was left without Government assistance (i.e. if the guarantee hadn't been given), depositors and bondholders would lose money, in all probability the bulk of their investment.
The current thinking seems to be that Anglo (and INBS) should have been let go back in 2008, with a selective guarantee of deposits, but allowing bondholders (international pension funds and banks in the main) to suffer the loss. Simulataneously, AIB and BoI should either have been nationalised or guaranteed to assuage the international finance community and maintain confidence that Ireland isn't a "serial defaulter" and its Government bonds can be trusted.
I see two problems with this
1) Hindsight is 20/20.
2) I'm not aware of any large bank being allowed to fail and bondholders being stiffed outside of Lehman's. To say that didn't go well would be a monumental understatement. So for those who say we should have let Anglo go, the only example we have of that taking place was a catastrophic failure and generally now acknowledged as the wrong decision. Those people who claim that there would be no associated cost in terms of Goverment debt to letting Anglo go are fooling themselves. Its almost undeniable that the price of Government debt would have shot up, and its highly possible the market would not have bought our debt at any price because we simply could not be trusted ("the Irish Government let Anglo go, why should we believe they'll pay their own debt back".
I must admit I'm hugely frustrated, not just by the clowns who run the system, but equally by the Joe Duffy brigade who don't have a notion about what they are talking about yet still think they have the whole thing cracked.
My own view, which I've repeatedly stated, is that the cost the country will ultimately bear for the financial crisis is completely and utterly fixed and was pretty much inevitable post-2005/6. i.e. regardless of what actions the Government took, the financial cost would be the same. We need to focus on why this was allowed to happen, i.e. the events in the 5 odd years leading up to this, yet all the media attention is about how we reacted to a situation that was a fait accompli. Government overstimulation of the property market, planning corruption, complete and absolute regulatory failure, lemming-like banking sector.........
Maybe more controversially, I reckon the reason Joe Public, led by the medja,is focusing on the response to the pre-ordained outcome, is that they don't want to look themselves in the mirror and accept that the writing was on the wall, we knew about the FF corruption, we knew it was all a little too rosy, yet a significant percentage of the population decided to re-elect the Government.
The truth hurts.
Meanwhile, I don't see any real sense that in 30 years the same thing couldn't happen again.
Depressing.
" Its almost undeniable that the price of Government debt would have shot up, and its highly possible the market would not have bought our debt at any price because we simply could not be trusted ("the Irish Government let Anglo go, why should we believe they'll pay their own debt back"."
Why was the Irish Government beholden to a private banks(as it was before it was nationalised) debts?
Even if the course taken was the best option (I remain to be convinced), the Government allowed itself to be bounced into the guarantee without truly assessing the options and/or ignoring advice. Could they not have suspended trading in Anglo shares whilst they considered options which could've included a negotiated a lower percentage to bondholders?Originally Posted by OneRedArmy
I wouldn't disagree with the sentiment, but I hope (pray?) the public are seeing through that, given the low ratings the Government are getting at the moment. They continue to focus on "the hard decisions" and stating that's why they are unpopular, but aren't they being punished for causing the mess too? Why would the architect of those supposed hard decisions be lauded at the same time as his party is bombing?
However, this is where I don't mind the focus on the decisions taken post crash - Lenihan has been bounced into (poor) decisions. I've no idea why the media (in particular) and public seem to see him as some great politician and hope for the future. There's very little evidence that he's any different to the rest of the Government members.
I guess the next election will show whether the electorate are as stupid as so many election outcomes since the foundation of the state make them look...
If you attack me with stupidity, I'll be forced to defend myself with sarcasm.
Because in developed countries that participate in international debt markets Governments are generally expected to stand behind their internationally active banks. This is backed up by decades, nay centuries of history.
Not to say I necessarily agree with this expectation, but as someone with over a decade's experience in international banking markets, it is undeniable that its an expectation.
The next question that needs to be asked is, given that expectation, which Government knew, should we not have taken better care to ensure that banks remained solvent?
But why should tax payers have to bail out what private bond holders get upto!!!!!!
50-50 Hindsight - no, its called the blindingly obvious that it would go balls up - come on, its a FF run country!!!!
And does that did/never voted for FF (or FG) isnt a reason why we should all suffer their mistakes
The simple answer is that they shouldn't, but if they don't, theyshould be willing to accept significantly higher mortgage and other borrowing costs (and I mean significant) as a lower cost of finance is the indirect consequence of an implied Government guarantee.
Wasn't Lehman allowed to die? I'm pretty sure there's as much precedent for allowing backs to collapse as there is for propping them up.
it was.
Not if you dont have a mortgage??????
Then, if my understanding of the situation is correct, in the event of the government failing to stand by a collapsing bank, you'd be less affected by one of the rising banking costs that ensued as foreign banks charged the Irish banks more for lending. But people who don't have a mortgage would be a minority, and if the governernment made a policy of not intervening to aid its banks, that minority would be shrinking pretty rapidly I'd say.
Last edited by osarusan; 10/09/2010 at 5:14 PM. Reason: 'the one of the'?? I don't think so.
There really isn't. Willing to be proved wrong (bear in mind I said developed countries and internationally active banks).
Sorry Macy, just to be clear, that's not what I said.
I said it didn't matter what option was taken at that stage, the ultimate cost to the country as a whole was pretty much fixed whatever option we chose.
I realise that isn't a particularly popular point of view, but we set our stall out as a small open economy decades ago and it's the reality IMO.
Don't get me wrong, FF and their cronies should be vilified, but I'd place more blame on how we got here rather than how they reacted. It's a shame that the international media (Newsweek etc.) as well as the domestic press seem focused on the latter.
This is a major assumption. Especially given the type of bank Anglo was. It would have pushed up the cost of borrowing but hello arent we in that position now and also wasting billions into the bargain. Investment carries risk. The Irish tax payer shouldnt be shouldering the burden of risk for instituitions investments when they have shared in none of the reward. Its farcical.
I agree it's farcical in the extreme.
But with interest rates over the last 15 years significantly lower than history, the average taxpayer has benfited whether they acknowledge it or not.
Time will tell the price that has to be paid for the low interest rate & home ownership religion that was allowed to build up.
How? Crippled with debt, living in a sh it hole town in the midlands with no jobs and new amenities, two hospitals closing in the town, inflation, etc etc?
I suppose us minions should be happy with what we got.............
Last edited by bennocelt; 12/09/2010 at 7:56 PM. Reason: spelling!
Joe Duffy is on at lunchtime, if you can't be bothered having a rational discussion give him shout.
Rational? Please, you are like a FF head saying how wonderful and great things are/were, even if we didnt know it!!!
Please tell me how the average tax payers has benefited from a FF led government through the last few years - Im all ears!!!
His point was perfectly valid in fairness. My mortgage repayments have dropped from E1,400 a month interest only to about E1k a month with E300 capital being paid off. Over the life of the mortgage, I'm clearly going to pay less as a result.
I think we all know ORA knows more about financial matters than the whole of FF and therefore nothing like a FF head but he's well able to defend himself so i'll stop now.
How we "benfited" is debatable but try SSIA, low earners out of the tax net, highest dole payments in Europe, college fees abolished etc etc. The thing is who ever got in after the 1997 election would probably done all of these things to a greater or lesser extent, in turn crippling the school leavers of the noughties anyway.
We all had choices during the late ninties, early noughties - go to college/get a trade or go laboring, rent or get on the property ladder, buy the newest reg car or get great value in the older stock no one wanted, spend your wages or save for the bust when it came. It comes down to good or bad decisions taken at that time (now with the benifit of 20/20 hinsight.)
Twenty year olds in the mid 90s had lots of opportunity to do well and and take opportunities to secure themselves in the knowledge that when the bang came they'd be ok. Or they bought that 4 x 4 and speedboat.
However on stu's point, it could be argued that the low interest rates on your mortgage mean you end up paying what you should have paid on the property if the bubble wasn't created and the morgage rates were closer to the norm. (i.e higher than they are now.)
Last edited by Fr Damo; 13/09/2010 at 9:02 AM.
I'm pretty sure there is but like yourself I couldn't be arsed going looking. I'll stop throwing out unsupported speculation if you will.
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