A question I’ve never heard asked nor answered is what will the Irish banks do with EUR 54 Bn? An injection of that much money into the economy would be counter-productive. Does the money go directly to bondholders / depositors? Total mortgage lending before the bubble was less than EUR 40 Bn if I recall correctly.
Interesting point. My brain is far too booze addled to answer it properly.
We seem be contemplating using long term borrowings to finance short term spending, which is surely a big no-no according to the basics of financial theory I learned at university.
Bit like using a credit car to buy a house, in other words.
It has been discussed in the Nama forum, the basic problem is that they propose give loads of money with no strings attached to property lending machines…they have no capacity to lend save 65% for property . They will still have no capacity to lend properly post bailout . eg Irish Nationwide.
Anthony Leddin is correct when he says it will leave the country , he wrote the only sensible article on it
I can’t understand this bit. My question is: what does private sector Ireland need EUR 54 Bn for?
But we’ve got six months interest free! It’s like free money! You’d be mad not to use it!
It’s not going to get it.
In the first place, the banks are losing 77 bn worth of assets. So the NAMA bonds are replacing those x% risk-weighted assets with 0% risk-weighted assets. This has presumably informed the amount paid - how much can be handed over without making the banks insolvent.
Separately there is the issue of capital ratio. As the banks will eat into their equity capital to pay for the losses (essentially, they’ve already issued profits for the rolled-up interest as dividends, so now they have a big minus in their books) they have to raise capital.
How much they raise in excess of regulatory requirement is how much new lending they are going to do. Otherwise, I believe the amount of credit offerred (and indeed demanded) by the economy will shrink for the next two years.
It boils down to this: if every individual of the state takes out a 34,000 euro mortgage to bail out the banks, they may see fit, in a moment of generosity, to advance us a few bob of a loan at punitive interest rates.
But only if we’re nice to them, we’re a sure bet, and they’re feeling generous.