The Politics of Nationalisation

There is a huge political problem with nationalisation in that post NAMA the banks would have to deal with the other parts of the balance sheet. Going to cause lots of pain, with many of the FF faithful affected.

So what do you do if you are Brian Lenihan? Nationalise the banks and you will have thousands of ordinary people being financially ruined while you are the proud owner of the bank. Is this desirable politically? Far easier not to nationalise and keep the detatchment. Make sure NAMA really does the dog on a few developers to give the impression they are not being let off the hook and hope for the best.

I know if I asked what should happen to the over borrowed a lot of people would say, their problem. But the problem is that as a nation we are now a bank, with a 400B balance sheet and a sideline in public services, and these debts that cannot possibly be repaid are not the borrowers problem they are ours.

So how would you nationalisation policitally acceptable with the above in mind while at the same time cleaning up the banks balance sheets?

I have thought about it for oh, about half an hour and am fresh out of ideas. :smiley:

Let’s look at the other side of the equation for a second. What are the problems associated with political control of banks?

  • Political interference in lending decisions. Dodgy projects getting the go ahead. (Cf. that swimming pool in Kerry). LTVs and income multiples being relaxed to “get the market moving”.
  • Political interference in managing loans. Buddies being allowed to roll up interest & other shenanigans.
  • Political interference in setting interest rates to prop up
  • Political interference in allowing fixed / variable rate transfers.
  • Political interference in managing bad debts, especially repossessions.

Can we avoid these if we nationalise? These are different forms of interference. Some macro (setting interest rates), some micro (repossessing Paddy McCanny’s investment properties). Consequently they need different types of safeguards. But I’m at a loss as to what they are.

One nationalised bank is ok, it will be kept in check by the other ones. If they are all nationalised, then it is a totally different situation!

Why will they be financially ruined?

As the banks deal with overlending in mortgages, credit cards, personal loans, pgs on business loans.

Ok gotcha. Thought you we’re talking about individual shareholders.

It is very simple.
Nationalize all the banks by purchasing the loans at market value. Then debt for equity swap to get new bank shareholders.

You need to separate the problems of nationalization from protecting EXISTING bank shareholders.

Bingo DE, Bingo. Although so many people know so little about this when you say this to them they say, “Ah, sur we need a bankin system”. Yes we do, we don’t have to give the shareholders et al 30Bn for nothing though.

aww, why not?

I have no problem with the economic argument. I am wondering how a politician would deal with the muck in the loan books. Not how he should - thats easy - but how he could limit the political damage of dealing with the borrowers.

Or have I misunderstood you and you mean in saving the taxpayer the equity value of the banks the loan book could be managed in a politically less harmful manner.

There are the economic problems of nationalisation that jcs discussed above but what about the political ones?