Let’s hope cowardice and indecision does not prevail: SBP

Great article from DMcW today. He’s spelt it out the situation facing Ireland in black and white. Note the use of the “C” word throughout. I believe this knowledge is too late though: the time for action and decisiveness was 6 months ago, not June/July 2008.

DMcW in today’s SBP.

Very good article and some great quotes.

But I don’t agree with his rescue. A forced capital-raising is more appropriate at this time. Any central bank intervention should be over the dead bodies of the shareholders.

That’s true. I don’t agree with his idea for a rescue either… Lest he be accused of being a moaner, yet failing to come up with ideas! But in all fairness, McW is not a FF Taoiseach/Minister for Finance and even if he was, there’s no way things would have got to this stage.

I don’t think it’s a very good article.

There’s a bit of histrionics going on and a bit of hyperbole.

He seems to be trying to create the impression that a significant number of top US bankers are being ‘rounded up by the FBI’, and that we in banana republic Ireland don’t bother taking action against financial fraudsters. Both of these impressions are false, and he ought to know better.

The number of US mortgage brokers who have been targetted by the Fibbies is a tiny, tiny percentage of the total number. Same with US bankers.

This statement is also pure bullshit, and again he ought to know better:-

Is he seriously suggesting off-balance sheet debts are a good way to go??

No, I think hs is trying to give the impression a significant number of top US bankers are being ‘rounded up by the FBI’.

FBI holds 406 for mortgage fraud:

news.bbc.co.uk/2/hi/business/7464298.stm

I’m not sure if it is clumsy phrasing, but if you securitise and sell a bundle of loans, someone else is holding the risk. But this is not really the same as off balance sheet, so I am a little confused (off balance sheet to my mind is a VIE (Variable Interest Entity) like a SIV in which the bank retains some or all ownership and so risk.

I love the way that when I opened that article there was not just one, but two ads for myhome.ie.

A hastily written panicky kind of article in my view. AFAIK the Fed is not leasing shares of US banks, they are taking in debt instruments of US broker-dealers (Goldman, Morgan Stanley etc) in return for discount window financing. The main banks have always had access to the discount window, and in addition, all can now use mortgage-backed securities in return for financing.

Many small regional banks don’t have such access, and as in the Savings and Loan crisis of the early 1990s, about 30% will go to the wall.

Well if it’s good enough for the Fed, I’m sure it will be good enough for the Irish Central Bank, and I would bet a large sum on it happening. It’s a no-brainer except that an argument could be made that Irish banks are not the equivalent of main banks in the US, but, in a European context, are just like the small regional US banks, and would thus sink or swim. Politically, of course, such logic won’t get a hearing.

IMO the bailout is as certain as a second Lisbon referendum. Only a matter of when.

The celtic cubs should emigrate in protest – let the final salary pension funds take up the slack.

Am I missing something here?
This type of facility already exists through the ECB. The Irish and Spanish banks in particular are securitising their loan books to create AAA rated bonds that they then repo with the ECB and get their cash. It is one of the reasons that the RMBS markets still have not opened up again, why try and sell you RMBS bonds into the market at a discount when you can simply repo them with the ECB, no questions asked

What Mcwilliams proposes is essentially the nationalisation of the banks.

So now the Irish taxpayer gets to carry the can for the high risks and maybe fraudulent behaviour of private business.

Can someone explain what the hell he’s advocating here? I’ve read it 3 times and I’m still not sure.

What kind of sale and repurchase? Selling and repurchasing what? Existing shares? New Shares?

Isn’t this just a really complicated way of giving them a loan?

And is David McW seriously suggesting that if we could just get the banks lending again house prices would recover and we could avoid outsiders picking from the carcass of the property boom?

What happened to houses are just too damned expensive?
What happened to it doesn’t matter how much the banks can lend, we as a nation can’t afford to keep buying and selling houses to each other at these prices?

I’m missing something here surely?

-Rd

I have also read the article three times. On a re-write, I am sure there are a couple of over-the-top points that DMcW would remove but, all told, I think he’s close to the mark - and it’s scary.
Maybe I’m missing it but I do not see where DMcW is suggesting that the banks get lending again. He is focussing on an upcoming bad debt problem and that the banks will need funding to cover these write-offs, and at a cheaper rate than the markets are currently providing (which is EURIBOR + 110 basis points).
The solution, however, is not workable in my opinion. There will be no sale and repurchase of shares with the Central Bank, as he suggests. I wonder if the outcome might be (a) smaller outfits - Anglo, for example - would be taken over by, say, AIB and (b) if the bigger boys - AIB or BoI - get into trouble that a large UK bank would buy them out.
I cannot really see any other solution, if it comes to this - and it might!

PS - After writing this, I decided to check on the share price falls over the past 12 months. AIB, Anglo, BoI, ILP - all down between 50% and 57%. In the UK, HBOS down 71%, RBS down 65%, Barclays down 55% and Lloyds/TSB down 41%.

There’s certain safely in numbers in this banking game (and it is a game) but maybe things will not be too bad , only if beause as they are all in the same boat and shouldn’t be there! - although the way out of this mess, I cannot foresee.

Looks like David’s been drinking the Kool Aid this week.

That’s the first article I’ve ever seen from him calling for a bailout of the reckless by the taxpayer. :confused:

Has he been compromised?

Actually I think he has called for it before. There is a certain typa of “doommonger” which is very pro-bailout, Roubini is the same.

Well, they would have to be new shares because quoted companies do not tend to hold large amounts of their own shares unless they are coming to the end of a share buyback. Securities legislation usually limits a quoted company to holiding 10% of its own shares.

I too am confused about what he is asking here. If the banks were to repo their treasury shares they would raise very little cash relative to the amount of liquidity that the economy would need if anyone was mad enough to really want the return of boom-time lending volumes.

Is he looking at the spate of UK capital raisings and trying to manufacture an Irish equivalent?

In any event, the economists in the pay of the major Irish banks have assured us that next year the economy will rebound so he is fretting over nothing.

On a similar vein the day Ben Dunne’s kidnapping was announced on Radio 1 on the 3 O’clock news stating that the kidnappers were demanding a ransom the first Ad after the news was 'Dunne’s stores better value beats them all’

The one good thing about the coming recession is that we might be able to get our sence of humours back by the time we get complete the misery graph.

I have had my reservation about the Foppy One for a while.

This is just barmy. Don’t you @$^&ing dare use taxpayers money to shore up shareholders, private asset holders, or any other private interest.

The very worst case, where failure could leasd to wider contagion and collapse of the financial sector, then all assets should be seized and balance sheets wound down as quickly and as profitably for the taxpayer as possible, or sold to someone willing to take it on.

This is absoltuely barmy of course, because not only is it cutting across ECB respnsibilities, but it would come under serious scrutiny from competition authorities. If I was Danske, for instance, I would be onto the European Commissioner for competition in a flash to kill it.

Ok, just so we’re clear. Is this what he’s proposing?

Banks Need cash.
Banks can’t borrow cash.
Banks could try issuing new shares but it’s questionable if anyone would underwrite the issue.

The Tax payer should underwrite the issue.

Is that it in a nutshell?

-Rd

Yes. And a nutshell is the perfect covering for it.