DUBLIN, Jan 25 (Reuters) - The government is investigating insuring billions of euros of bad loans belonging to Irish banks as part of plans to avoid further nationalisations, the Sunday Tribune newspaper reported, citing government sources.
A finance ministry spokesman declined to comment.
The plan would resemble a British scheme, allowing banks to identify their riskiest assets so that they can insure against future losses with the government for a fee.
In the Irish case, the insurance scheme would focus on loans given to struggling property developers, a main reason for the weakness of Irish bank shares
is that a new word for “blindly copy, in the hope that this might work”?
So : guarantee plus insurance = doubling up the bet on the CIF laddies…holy sweet jehova on a surfboard. No wonder the finance muppet didnt comment, probably riffling through “finance for dummies” if the Indo is right.
Ok, so the UK got into this mess because banks like Bradford and Bingley and N Rock lent way too much to “Buy To Let” investors. As such the UK govt has basically taken that part of the mortgage market under their wing
In Ireland, its not so much Buy To let but “Loans to Developers” that have crippled the banks. So, the govt is going to take that part of the Irish mortgage market under its wing…
All good…but I would suspect that the Loans to developers, many on sites that require 2x the money again to actually build the scheme, are much much higher risk to the taxpayer…If the govt indemnifies these loans, then there is every chance that at some point the banks feel comfortable enough to lend for developing the sites. Sure, this will prop up the economy for a few more years…but then we will be facing a problem much bigger than where we are now…because we will still NOT be able to sell the apartments at a price where the scheme doesnt end up taking a big loss
The govt should wake up and just bite the bullet now…The banks write down the loans, sell the sites at a massive loss. The govt plugs the hole in the banks and the banks get on with helping to re-build this economy with a focus away from construction
The Irish taxpayer is already insuring the liabilities of the Irish banks. That means (pretty much) anyone lending to an Irish bank is protected from default to the extent that taxpayers have anymore blood to extract.
Now a wheeze to insure that sset side of the balance sheet as well. Effectively that means providing assurance for the bank shareholders and those carrying the risk of insolvency (the lenders to the bank or those insuring the liabilities of those lenders).
So this is a proposal to insure taxpayer against the risk the government has taken as insurer to the banks. Completely absurd. The government proposing to insure itself as insurer to the banks.
Moreover, it indirectly provides additional insurance to those lenders to the bank that are presently captured uner the liabiltiy scheme.
By having the taxpayer insure the asset side of the balance sheet the government is removing the incentive for banks to chase lenders, in fact it may incentivise them not to chase down lenders because they’d rather see the taxpayer pay up than their customers.
Also, how does the Gov put a price on the insurance? They haven’t made ANY attempt to look at the loan books of the banks and put fair values on the individual loans. It could be that creditworthy customers will pay an excess premium to cover the chancers. That’s assuming the government will even charge a premium.
This to me is by far the most dangerous proposal yet.
Please go and borrow money as much money as you need, you can use our name as your guarantee. If that doesn’t work, we’ll lend you some ourselves. If you get into any trouble, we’ll bail you out, so go on and lend away! If any of the loans you’ve already given out over the last few years without due regard or due diligence now look a bit dodgy, don’t worry, we’ll take care of that too.
If there’s anything else you need, just let us know.
FF & Co. on behalf of
The State and Citizenry of Ireland.
I’ve said before that I believe that PWC and the other three of the big four are perhaps the key bad apples, responsible for a huge amount of what has gone wrong in the banks and government (as far as corporate bodies can be said to be responsible).
If there’s a fair argument that that is so (and I think there is - see article in this week’s Sunday Times also), then the fact that our entire banking and general economic strategy going forward is built on the PWC audit of our loan books, and other PWC strategic advice, is a cause for serious concern.
I’m wondering who are the puppets and puppet masters - PWC or the government? And whose interests are being served? It’s certainly a very concerning relationship for the public. Not least the fact of the huge sums of money being paid for such services.
Here now is a bizzare thought, straight from “The Law of Unintended Consequences” file …
Assuming the government does commit the State to underwriting the banks bad debt, then in essence it is putting our money, collected via tax, on the line.
Is it not possible, that in such a circumstance, they inadvertently increase the likelihood of some individuals defaulting, the thinking being; “Well I’ve already paid my taxes so they (the lender) can go and take it out of that.”
Maybe we’re in danger of creating some form of cyclical reverse moral hazard paradox …
I would have thought such considerations would be part of a train of thought that ought to be included in any comprehensive economic analysis attempting to plot a course in this country’s moving forward.
Pity the economics profession doesn’t currently consider it ‘fashionable’ to include such trains of thought in their analyses. Basically because it’s too difficult to incorporate these types of considerations in their econometric models.
Seems to me that this type of phenomena would occur with significant probability.
When we talk about the STATE in this sense, we are talking here about you and me. Yet again, its a full indemnity to the builders to resume ‘normal service’ and guess what folks, we’ll possibly pay higher income taxes as result for the ‘priviledge’ of bailing builders / developers so they can roll out inflated, poor quality shit developments. Government wins too, as taxes resulting from the property transactions begin to flow. When will we ever learn.