What if the banks direct their new cash inflows to FTBers?

What if the banks direct the majority bulk of their new found cash in-flows towards a new layer of first time buyers?

Is there anything in the legislation to prevent them doing this rather than directing the money to business and enterprise?

Would anyone here fall off their seat in shock and surprise if this was actually what happened?

The guarantee only lasts 2 years and what they won’t want to do is rush for quick short-term profits and find themselves in an even worse place in 2 years time. I expect they will see this as a lifeline and they willl look to clean up their balance sheets in order to emerge in a strong position when the guarantee is lifted.

Of course it will happen if the State has taken a 400 billion plunge for the banks and a banking system what is to stop them from underwriting the loans of a FTB scheme, with a second piece of “essential” legislation which would set up a National Equity Guarantee Scheme

Ah, the National Encompassing Guarantee for Equity - known as the Neg-equity scheme?

I certainly hope so ARW but…

Since when do the head bankers care about 2 years down the line? They don’t, they’ll get a golden parachute when it all goes Pete Tong anyway. They’ll have collected significant bonuses and pension entitlements in the meantime.

The thing about all this oppposition bluster about capping banker salaries and bonuses is that I don’t think that you can just throw away contract law because for a populist fig-leaf. These guys have contracts with their companies which entitle them to these payouts and the only way to prevent them getting them is for those companies to cease to exist.

It’s moral hazard at the chief executive level.

As far as my limited knowledge goes, they have two ways to clean their balance sheets. -1- More capital and funding on the liability side -2- Boost the value of their assets on the other side.

By dumping all the money they receive (deposits, interbank loans etc) into the property market through FTBers (with the right spin of course - property ladders and all that baloney), they boost the value of the asset side of their balance sheet… ne c’est pas?

I’d expect the banks to try and progressively diversify away from property over the next two years. This gives them the breathing space to do that in a fairly calm way. Over the next two years they’ll unwind their positions out to developers, take whatever writedowns they have to on the assets and recapitalise with equity issues once they’ve cleaned out the deadwood. They’ll also be a whole lot less generous with mortgage credit for the foreseeable future to try and build more diversified books.
Why would they pour money into the FTB business, creating more assets where the borrower is immediately in negative equity? They’re not idiots and realise that they’ve got a two year window to trade out of any solvency issues.

WV

I’ve spotted the fatal flaw in your argument…

Indeed!

It seems to me that neither the bankers nor the politicians realise that the property game is up. The international credit issues have provided them with the excuse that there is nothing fundamentally wrong with what had been happening in Ireland, they don’t believe that houses have been over-valued, that developers have paid sums for land banks that they will never a make a profit on, that banks have lent recklessly. I think that they are all firmly of the belief that if they can weather the international storm then Ireland can be back to normal of building too many houses/apartments and selling them to each other. Right now I have no faith in anybody that has the power to rectify the current situation.

Why has not one single CEO of an Irish bank been replaced? The boards think they are doing a great job and have just been scuppered by international events.

I am afraid for the future.

Just because that is the right thing to do it does not mean that it will be done.

Without any changes in senior management I would not be surprised if some of the banks try to revive the property market with the blessing of the government. Do you think that FF actually want to banks to precipitate a wave of developer bankruptcys by calling in loans that they know are bad?