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The hole in Ireland's banks is £21bn

Robert Peston | 18:28 UK time, Thursday, 31 March 2011

Could the Irish banking system, where a single nationalised bank, Anglo Irish, has just announced losses of £16bn (18bn euros), equivalent to well over a third of all revenues received by the Irish government, be any more bust (and thanks to the journalist Fintan O'Toole for that comparator)?


A man begs for money outside a branch of the EBS building society in central Dublin, Ireland

 

It turns out that it could.

The Central Bank of Ireland has announced that total losses of four other banks - Allied Irish, Bank of Ireland, Irish Life and Permanent, and EBS - are expected to be £18bn (20bn euros) over the coming three years, on the basis of what is expected to happen to the struggling Irish economy over that period.

And if the Irish economy performs worse than expected, then the losses on what the regulators call this "stressed" basis will be £25bn (28bn euros).

The banks are also being forced to shrink to a size that poses less risk to the Irish economy. They've been instructed to reduce the net loans on their balance sheets by £63bn (71bn euros) by the end of 2013 - or by an amount equivalent to around half the value of the Irish economy.

And this process, known as deleveraging, is expected to generate another £11bn (12bn euros) of losses for the quartet of Irish banks, as certain loans and assets are bound to be sold or unwound for less than their face value.

The painful consequence is that there is a shortage of capital - the shock-absorber to protect depositors from losses - of £21bn in these banks. This capital shortfall consists of money to cover the expected losses and further rainy funds designed to be a buffer just in case things get even worse.

That is a colossal sum for them to find. And remember that £41bn of taxpayers' money has already gone into Ireland's banks.

So in total Ireland's banks will have been required to raise capital of £62bn at the end of this process, equivalent to more than half its annual output.

When it comes to projected losses, worst hit of the four would be Allied Irish Banks with between £8bn and £11bn of losses between 2011-13.

The cause of these losses? Well it's the continued weakness of the Irish economy. So Black Rock, which assessed likely losses at banks on behalf of the Irish Central, expects substantial pain for banks on their residential mortgages and also on loans to companies, small businesses, consumers and commercial real estate developers.

When it comes to the housing market, latest figures, for the end of 2010, showed that 5.7% of all mortgage accounts were in arrears by more than 90 days, which represents a rise since 2009 of 56% in the number of borrowers finding it impossible to keep up the payments.

No surprise really. Unemployment in Ireland has been rising and stands at 14.7%. Wages have been under pressure, and the price of houses has been falling for four years.

If anything, the surprise is that regulators have not until now forced Irish banks to recognise their potential losses on lending to home-buyers.

Update 1748:

The hope for the Irish government is that in owning up to the full extent of the hole in its banks, it will begin to rebuild the confidence of those who lend to the financial sector and to the state.

There are questions about why it has taken so long for the regulators and the banks to recognise the full exent of losses faced by the banks on loans to homeowners and businesses - given that the housing market and economy have been in trouble for some time.

But there is no possibility of recovery until all the horrors have been disclosed.

And what horrors they are. By the time taxpayers have injected new capital into the banks as a shock-absorber against the problems that lie ahead, they will have invested a sum equivalent to more than half the value of the Irish economy.

Where from here?

Well it is by no means the end of Ireland's woes. Its banks, even when wholly or partly nationalised, are still on a drip of loans from the European Central Bank - which is not sustainable.

And the new Irish government fears that the interest rate it is paying on 67.5bn euros of rescue loans from the eurozone and International Monetary Fund is too high - and threatens to undermine its ability to recover.

Mending the banks is only the beginning of Ireland's economic and financial rehabilitation.

Update 1827:

The other issue raised by the elongated, episodic and - some would say - belated disclosure of the woes of Ireland’s banks, is what it says about horrors that may lurk elsewhere in the eurozone.

Those, for example, who fear that Spain’s banks haven’t yet been forced to disclose the full extent of the losses they face on their exposure to the burst residential and commercial property bubble will not be reassured by events in Ireland today.

Comments

Page 1 of 2

  • Comment number 1.

    RP wrote: If anything, the surprise is that regulators have not until now forced Irish banks to recognise their potential losses on lending to home-buyers.

    I don't think this is a surprise at all. The whole situation has been intentionally dragged out because the real connected problem for many countries' banks is the likely CDS bombshell.

  • Comment number 2.

    So the four banks mentioned will involve the Irish taxpayer in putting up an extra 24 billion Euros of capital. There appears to be little end to this as the Irish Finance Minister said in his speech that the other two main Irish Banking Groups will be dealt with in May. By then there may be very little of the 35 billion Euros made available by the EU/ECB/IMF for Irish banking reform left if any.

    Also the support for Ireland's banks from the European Central Bank which has soared did not get much of a mention either, so sadly this is by no means the end of it.

  • Comment number 3.

    Oh dear Robert, what Dire Straits...

    The Irish wanted Money For Nothing...

    And now it looks like...

    We're NEVER GETTING IT BACK!!!

  • Comment number 4.

    What I cant work out is just where all this money is going. The sums are unimaginable and seem to just dissappear

  • Comment number 5.

    "But there is no possibility of recovery until all the horrors have been disclosed."
    Exactly and there are still many banks worldwide that have not yet disclosed the true falls, it's not mark to market but mark to myth.
    In the States huge numbers of mortgage payers are underwater or have stopped paying but the banks are still carrying secondary loans at full value and there's no chance these will be paid.

  • Comment number 6.

    Why don't they let the banks go bust?

    I know its "heresey" to suggest it, but if it happened where, exactly, would the "losses" fall.

    At the moment they will fall on the taxpayer, so why not let them fall on the investors, bankers and bond holders embroiled in the bank, rather than "innocent bystanders"

    Seriously, I don't know the rationale behind the route being taken

  • Comment number 7.

    A show trial - that's what's needed. Get Bertie Ahearn in the dock, together Brian Lenihan and all the financiers and developers who between them have totally trashed what was a wonderful country.

    It won't achieve anything in terms of helping balance the books, but it'll certainly help cheer people up to see them trying to defend themselves.

    Whilst they are on remand (Bail? You really expected bail??!!) pair them up in cells with some of the people who have suffered the most.

  • Comment number 8.

    It'll be interesting to see how the new government deal with this.

    The scale of the figures is totally unprecented almost to the point of being beyond comprehension, so there's an arguement for them doing something utterly radical. After all, there are hardly going to be any quick calls to bring back Fianna Fail for the next decade or so.

    So why not go for it. Default perhaps? Withdraw from the single currency and bring back the punt. Create a new currency and give everyone a years salary.

    Apply to become a sort of 51st state of the US.

    Just something radical.

    Let's face it, orthodox solutions haven't worked, so why not try something totally off the wall.

  • Comment number 9.

    I think if there were a referendum in Ireland tomorrow (like Iceland) as to whether to pay it back or default they would go for the default and drop out of the euro option if they were presented with the relative merits of each option.

    That will be the acid test for the Euro zone if a nation votes to default and in so doing brings down the banking system of the northern european economies.

    That is when we find out if we live in a democracy or merely the illusion of one.

    The survival of the financial system requires european citizens to be compliant in suffering in order to pay off the debts while simultaneously continue to watch six figure bonuses in the city being dolled out like sweets.

    Paul Mason of Newsnight (orwell award nominee this year) had a far more cutting edge and accurate take on this.

    http://www.bbc.co.uk/blogs/newsnight/paulmason/2011/03/euro_its_all_down_to_timo_of_f.html


    Not for the faint hearted.

  • Comment number 10.

    What fools we all are....
    The British, the Americans, the Portuguese, the Irish, the Spanish.....
    When property loses its basic relationship with the average wage, we are all playing with fire.
    "An Englishmans home is his castle"....and his downfall.
    I remember in 2004, when UK property was doubling every 2 years, thinking that this was going to end in tears. Gordon Brown was oblivious, as were so many other financial leaders.
    Many European countries have a huge rental sector, so are not as affected as us.
    Ireland is just an extreme example of the sickness that gripped us all.
    Default?.....maybe, maybe not.
    EVERYONE pays for this sort of banking lunacy....and make no mistake, it's banks that set property prices, not estate agents.

  • Comment number 11.

    I see no alternative except for Ireland to default.
    Even the new Finance Minister, Michael Noonan hasy admitted that the planned €10bn capitalisation will not be enough to cover the increasing losses of Irish banks, and some at the head of that new Government, are anxious that the amount needed could be more than that, as in double that!
    Consider that this figure is laying atop
    - the €46bn already committed in bailout funds from the taxpayer and
    - the €30bn in Nama bonds and
    - the €70bn or so from the Central Bank in emergency funding.
    It's enough to take your breath away!
    Remember this: the nefarious actions of @ 100 people elites at the top top of Irish banks have brought Ireland to this piteous position.
    Given this sorry background, Ireland's deficit (forecasted to be €12bn this year) is not problematic - but next to impossible. In short Ireland is lost at sea, drowning.
    This humunguous debt likely means that sovereign debt itself in not sustainable.
    In fact, I cannot see how Ireland can meet her sovereign obligations - not in the short-term or the long-term.
    Ireland neeeds growth to break out of death-trap, and with the Irish austerity prgram, growth is not going to happen.
    So the only question to answer is this:
    Ireland should default, but when SHOULD SHE DEFAULT?
    Ireland cannot go on financing and refinancing. No growth and then what?
    Additional tax hikes.
    Fine Gael TD Paschal Donohoe, who is very financially lieterate has just published: “Why the 31st Dail should not be the default Dail”.
    Donohoe’s document sets out the stark consequences of a unilateral default for Ireland.
    1. Ireland would lose any ability to borrow.
    2. Ireland would be out of the markets for five years.
    3. Once Ireland returns to the markets, she would face higher interest payments.
    BUT
    Ireland is a member of a single currency zone. An immediate step that should be taken is to devalue the currency. This will provide a quick ‘stimulus’ of export competitiveness. However, Ireland does not have a national currency and therefore this option seems precluded.
    Defaulting economies have recourse to the IMF. Ireland has already done its recourse with the IMF - fat lot of good that it did! It would seem horrible to default to so-called lenders of last resort.
    So, can Ireland face default?
    Regardless, of my own arguments, I must contend that default is the only viable option.
    The next step, after the stress tests results are known, is that Ireland needs to complete a comprehensive debt audit
    - separate its banking debt from
    - its sovereign debt and start reducing the burden.
    Any debt owed by the State for mandatory expenses (like doctors & teachers) must be honoured.
    But, Ireland must tell those who GAMBLED on its banks that they must take a severe hair-cut.
    - €22bn in unguaranteed stuff and a further
    - €60bn + on other bank-related stuff,
    Ireland MUST inflict these losses on the investors who gambled and lost.
    Finance Minister Michael Noonan needs to start hitting and hitting hard to ensure taxpayers are not left to pay for the CRIMES OF IRISH BANKERS.
    France and Germany are not beatified countries; they cannot insist that Ireland must offer up at least a “gesture”. Forget that!
    If countries like Germany and France fail to take a big step back, Irish voters should opt out of the EU and Euro (for now).
    Bottom line - Ireland must default, must do it quickly so that it can devalue its own currency and up exports.

  • Comment number 12.

    "3. At 18:00pm on 31st Mar 2011, rock_and_roll_economics wrote:
    Oh dear Robert, what Dire Straits...

    The Irish wanted Money For Nothing...

    And now it looks like...

    We're NEVER GETTING IT BACK!!!

    "

    Looks like the writings on the wall;)

  • Comment number 13.

    There is one simple reason why the Irish banks didn't confess earlier had they done so they wouldn't have got the money they have thus far. They are like the gambler or alcoholic who converniently forgets about part of their misdemeanours in the hope that by giving a little bit of bad news at a time they will be forgiven.

    Ally this to the Portuguese fessing up this morning re their deficit in 2010 being much worse than claimed does anyone really believe anything any banker or government figure in any of the PIIGS says about their finances.

    A few others have said that there are huge undisclosed losses in Spain now that is where the fun is really going to begin.

  • Comment number 14.

    #4 ask bob diamond he will tell you where the moneys gone.

  • Comment number 15.

    Your right about Spain Robert. The banks aren't selling the houses on their books so they don't have to revalue the rest at a more realistic level. It's all a game of pretend and "confidence".

  • Comment number 16.

    I look forward to the day the bank auditors and rating agencies are brought to book as part conspirators in his whole sorry mess.

    We need a show trial - for the sake of the future generations who will be paying off this debt.

  • Comment number 17.

    RP asks:
    “…why it has taken so long for the regulators and the banks to recognise the full exent of losses faced by the banks on loans to homeowners and businesses - given that the housing market and economy have been in trouble for some time.”

    A – Because they wanted to kick the can down the road. Like all banks and all governments have from… well from forever. They say 'if we can pass this problem to the next generation then we will'.

    Alas, we are that generation. What we gonna do about it?

    Feel the Spain pain?

    Feel the Greece (I can’t think of anything to rhythm with that)?

    Feel the Portugal (surely nothing rhythms with that)?

  • Comment number 18.

    Robert,

    It seems we want what we cannot have, and do not want what we do have, without a thought of ethical behavior.

    Perhaps Rome might help out the balance sheet (and in ethics)?

    Many, including politicians, financialists and economists might benefit from understanding basic ethics of how to run a business/country/government. I would think this be a fundamental requirement for anyone in a corporate or banking environment. Lenders may be equally tainted.

  • Comment number 19.

    The banking model only works in an expanding market.
    Any shrinking and the taxpayer picks up the tab.
    Clever bankers.

  • Comment number 20.

    Central bankers and Treasury officials around the Western world have done their level best over the last 30 months to convince us all that the credit crunch was nothing more than a bad recession and that normality would return pretty soon.

    I have complete respect for the way that they kept the whole ruse going for so long. They did a sterling job.........but now I am afraid, the game really is up for the Western economies. Consider the following facts and ask yourself whether these facts could have been believable say five years ago;
    -Ireland on the verge of sovreign default
    -Greece ditto
    -Portugal ditto
    -Egypt ditto
    -Libya partitioned by Nato
    -Western allies approaching their tenth anniversary in Afghanistan (and still losing the war)
    -US Fed prints over one Trillion dollars in one year alone
    -US house prices nearly 60 % down
    -UK government pays every one of its employees in printed money for 18 months in a row
    -The number one high-end manufacturer in the world heading for total debts of 250% of its GDP....at least 25% due to earthquake related effects.

    The keynsians have fought a brave campaign, but now they are out of ideas and out of ammo......we are entering a period of huge defaults which will knock Western living standards back to where they were in the sixties.

    I just wish the politicians would give us the respect we deserve and tell us the story straight!

  • Comment number 21.

    ralphcameron wrote:
    What I cant work out is just where all this money is going. The sums are unimaginable and seem to just dissappear

    The trouble is , The money has already gone, it has gone on living beyond their means for the past 15 years or so. Ireland thought they were some sort of Tiger economy, they spent it. Some of it, like Iceland , buying up chunks or our economy on borrowed money.. Stealing our UK tax base with low company taxes,

    I have a well educated friend who claims Ireland hasn't had a bail out,not a ppenny piece. The money is only borrowed.. still living in the world of make believe..dream on..

  • Comment number 22.


    Only the brain dead would think that this news comes as a surprise.

    Don't listen to the latest propaganda from the financial sector or the government who both have vested interests in keeping these terminally ill banks alive, just think about it for yourselves.

    This is one enormous Ponzi scheme, where the masses lose all their money to a few select individuals at the top of the pyramid.

    Ask yourselves WHY did governments throughout the world sign a blank cheque on our behalf and hand it to the banks.

    We already know who are the losers. Who is benefiting from all this?

  • Comment number 23.

    If the EU wont play then a referendum on leaving the EU which involves big devaluation may be the only way out And the same for Greece et al

  • Comment number 24.

    "The cause of these losses? Well it's the continued weakness of the Irish economy."
    Wrong - corruption at many levels in the past and still ongoing is the cause of the problem by the banks,politicians and individuals who tried to game the system. Default is the only way to collapse the rotten edifice and remove those responsible (directors to prison) whilst rebuilding peoples confidence that the struggle of recovery will lead to a better future. At present all we can see is the chief culprits continuing to benefit from their blackmail and larceny. As for the scale of the problem - why is there no spotlight yet shining on the offshore tax haven based vehicles where the real dross is still waiting to be uncovered - but of course the answer is that reveal that and the game is really up.

  • Comment number 25.

    No SteveWo at 10.

    'it's banks that set property prices, not estate agents'

    Banks don't set property prices. Prices are set by what people are prepared to pay for them. I don't deny that banks play their part in the process - but not all banks lent 110% to buyers and disregarded the buyer's ability to sustain payments.

    Too many of us have lived in a fool's paradise of endlessly affordable consumerism - affordable, that is, if you are happy to borrow money for what you can't really afford today in the hope that some postal order will turn up and allow you to repay it tomorrow.

    I wonder how many people when they take on financial commitments sit down and undertake their own family 'stress test'. How many work out exactly what their fixed commitments are, what is left for discretionary spending and then stick to that limit for treats, luxuries and spontaneous seduction by sellers of designer brand handbags, shoes, glasses, jackets, trainers, phones, etc.

  • Comment number 26.

    Is this really the bottom? I seem to recall Lenihan trying to put a floor under the debt not so long ago. I hoped he was right: fat chance that was.

    Now the banks have come back with even more losses. Is this a debt spiral? You know, you can't pay your debts as you don't have the income so the debt accrues so you never have the income ever.

    There is only one way to you square that away? Bankruptcy or default; as it is known in South American circles.

    The debt is the rotten part of the equation and for all of our sakes we have to find a collective way of dealing with this debt. Perhaps if a sizeble portion was defined as odious hopefully with hair cuts all round for the banking class, we just might be able to stabilise Europe.

    I mean Gordon Brown saved the world so stabilising Europe should be easy-peasy.

  • Comment number 27.

    16. At 19:11pm on 31st Mar 2011, willhay99 wrote:
    I look forward to the day the bank auditors and rating agencies are brought to book as part conspirators in his whole sorry mess.

    We need a show trial - for the sake of the future generations who will be paying off this debt.
    ----------------------------------------------------------------------------------------------------------------------------------------

    Please don't hold your breath- it may well prove fatal. I've been waiting for action for 3 years now, and nothing, absolutely nothing, has happened. All these people are in the same club- super remunerated, super "talented", moving from job to job in a game of musical chairs that ensures mud never sticks. Trouble is, they are all incompetent, didn't do their jobs properly, cost the nation a fortune, but will never, ever suffer any consequences. That is the system of justice in the UK, 2011.

  • Comment number 28.

    Two years ago, I was a lone voice on this forum (if you can call Robert P's comment section a forum !?!) crying out that we in the UK shouldn't rescue our banks, that we should default on their debt, and face a few months of severe and unimaginable UK pain (loss of import ability, a month or two of national rioting, etc) followed by a rebirth and re-growth, and a strong future thereafter.

    But no-one seriously thought it an option. Shame.

    Ireland would have been much better off letting their banks default two years ago, than the inevitable State default to come now. And the extra pain they will face due to the delay is humungous, and they will find that they have sold themselves and their children to foreigners for a generation !

    Shame that we in the UK have done the same - we just haven't realised that the IOU is soon to be collected !
    Look what we have done to Britain's kids !!

  • Comment number 29.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 30.

    6. At 18:11pm on 31st Mar 2011, NonLondonView wrote:
    Why don't they let the banks go bust?

    I know its "heresey" to suggest it, but if it happened where, exactly, would the "losses" fall.

    At the moment they will fall on the taxpayer, so why not let them fall on the investors, bankers and bond holders embroiled in the bank, rather than "innocent bystanders"

    Seriously, I don't know the rationale behind the route being taken

    .....................................

    The reason the banks were bailed out was to protect those same investors, shareholders and banksters. Rich people who have so much spare cash, they just use money to make more money, use every tax avoidance scheme they can, contributing nothing to the economy except passing debt onto someone else who has to earn that 5% interest on their bond.

    Unfortunately, this collection of people also happen to be the politicians, the CEO's of major companies and the lazy rich who have never done a hard days work in their lives. They contribute so much in lobbying that politics and democracy goes out the window, resulting in cronyism and corruption.

    Its called a plutocracy but kleptocracy would suffice just as well.

    The one thing I find really comforting, is when the collapse comes, and it will come, the rich at the top have the most to lose. Whats the point of having millions of pounds if it isn't worth the paper its printed on. Plus, after the crash, the last thing I would want to be doing is driving around in £50k+ cars, living in a £1m+ pound homes, wearing expensive suits & jewelry attracting attention to myself !

  • Comment number 31.

    4. At 18:04pm on 31st Mar 2011, ralphcameron wrote:
    What I cant work out is just where all this money is going. The sums are unimaginable and seem to just dissappear

    ----------------------------------------------------------------------------

    There never was any such money. It was just figures written in accounts.

    e.g. if a year ago I said you house was worth a million, then this year I said it was worth only half a million then nothing has appeared or disappeared.

    Suppose you used your house as collateral; the bank lent you a million then when you defaulted (hypothetically) they'd have lost half a million. Your house looks just the same.

  • Comment number 32.

    Better still ... put them all into administration ... ring fence the depositors money into two new banking structures ... as 51% owned by the Irish state
    Crunch them all together and reduce costs!
    The new structure ...
    1) Retail structure
    2) SOFOMT structure - for all the rest with 'haircuts' for all and sundry
    Simples!

  • Comment number 33.

    This will be an annual presentation , until Ireland's house prices are stabilised. It is a simple as that !

  • Comment number 34.

    25. At 20:21pm on 31st Mar 2011, Slessac wrote:
    No SteveWo at 10.

    'it's banks that set property prices, not estate agents'

    Banks don't set property prices. Prices are set by what people are prepared to pay for them. I don't deny that banks play their part in the process - but not all banks lent 110% to buyers and disregarded the buyer's ability to sustain payments.

    I wonder how many people when they take on financial commitments sit down and undertake their own family 'stress test'.
    ---------------------------------------------------------------------------

    Slessac, with all due respect, if you asked me for a loan I would make damned sure you could pay it back. If you couldn't convince me, no loan.

    The banks could have done that but they didn't. How stupid is that? How stupid are we for bailing them out?

  • Comment number 35.

    28. At 20:37pm on 31st Mar 2011, TrustedFriend_Com wrote:

    Two years ago, I was a lone voice on this forum?
    ..........................
    Really?

  • Comment number 36.

    Look at the National Lottery and the Euromillions ?

    When the draws are rolled over, why does the prize money increase at a frenzy ?

    The reason is simple. The human capacity for greed.

    To win a million pound is surely beyond hope, and yet are people satisfied with that ? No, they want 2 million, 3 million, or to win 117 million pounds.

    Take bank bonuses ? A bonus of 1million is not enough, they want multi million rewards for illusionary good figures

    Take house prices ? well say no more on that score

    Remember inheritance tax, the hoohah over the taxation? Another example,the benficiaries ? What have they contributed to the value of the house ? usually nothing, they get a mass of money for nothing even after taxation and yet they still complain that inheritance tax is unfair.

    Greed by all and many are now suffering but those "with money" are suffering nowhere near the degree of the masses.
    Well, lets start with the prime culprits and work our way down the list, bring the financiers back down to earth, bring forth legislation retrospective to 2008, and tell them any financial institution that goes bust (forget rescuing them) and the directors past and present will be charged with high treason against the state.

    You fear the revolution will happen soon, desperate people will begin to take desperate measures.

    How long will this democratic nation survive ? What will be the defining moment ? I wager petrol pumps go to £2 a litre. Oil prices are only going 1 way and so is this country.

  • Comment number 37.

    An extra 24 billion Euros borrowing by the Irish government to support the banks equals over 5k Euros for every man, woman and child in the Republic. Maybe more of us will be buying a holiday home in the Republic if prices of property keep falling there or indeed retire there.

  • Comment number 38.

    17. At 19:13pm on 31st Mar 2011, Remantled wrote:
    "Feel the Spain pain?

    Feel the Greece (I can’t think of anything to rhythm with that)?

    Feel the Portugal (surely nothing rhythms with that)?"

    Feel the Greece Fleece?
    Fell the Portugal Torture, Girl?

    Let's face it, looking at the news, Japan aside, reading these blogs and common sense analysis the system cannot carry on as it has, it's had it's day.

    There is too much vested interest in politicians to secure the banks and financial markets, they appear willing to risk the lives of the citizens they are supposed to represent to do it, this must be broken first.

    Nothing will change while money is god and greed is good. Capitalism stinks. Deal with it.

  • Comment number 39.

    Yes, i remember when the bail out of Ireland happened. There were people on these blogs saying it was only a "sticking plaster" and that three to five years later the problem will resurface, only bigger. Seems like they were right, only in didn't take 3 to 5 years.

    Why oh why did we all bail out the banks. It was never going to work. The debt problem was just transfered to the state. A state default will always be much more painful than bank defaults. Anyway, if the banks were allowed to go bust the state could just buy up the remains at a massively reduced price and pick and choose which bits they wanted. Investors would have felt the pain not citizens.

    Investors felt the pain after the tech bubble burst but never got an preferential treatment. It was just seen as a bad bet by those that lost. Why could it not have been the same with the credit boom.

    If there was no bail out of banks, think of the amount of money that could have been used to kick start / reform the economy.

    This will all end in tears for most of the "west".

    My moto for this recession has held true for three years so far "It just gets worse"

  • Comment number 40.

    "6. At 18:11pm on 31st Mar 2011, NonLondonView wrote:
    Why don't they let the banks go bust?

    I know its "heresey" to suggest it, but if it happened where, exactly, would the "losses" fall.

    At the moment they will fall on the taxpayer, so why not let them fall on the investors, bankers and bond holders embroiled in the bank, rather than "innocent bystanders"

    Seriously, I don't know the rationale behind the route being taken"

    .....................................
    30. At 20:46pm on 31st Mar 2011, stennylfc replied:

    "The reason the banks were bailed out was to protect those same investors, shareholders and banksters. Rich people who have so much spare cash, they just use money to make more money, use every tax avoidance scheme they can, contributing nothing to the economy except passing debt onto someone else who has to earn that 5% interest on their bond.

    Unfortunately, this collection of people also happen to be the politicians, the CEO's of major companies and the lazy rich who have never done a hard days work in their lives. They contribute so much in lobbying that politics and democracy goes out the window, resulting in cronyism and corruption.

    Its called a plutocracy but kleptocracy would suffice just as well.

    The one thing I find really comforting, is when the collapse comes, and it will come, the rich at the top have the most to lose. Whats the point of having millions of pounds if it isn't worth the paper its printed on. Plus, after the crash, the last thing I would want to be doing is driving around in £50k+ cars, living in a £1m+ pound homes, wearing expensive suits & jewelry attracting attention to myself !"

    If you simply let the High Street banks go bust, all the depositors (ie ordinary people like you and me) would lose their money and if the crisis then spread throughout the entire High Street banking system, the purchasing power of consumers would completely collapse and the entire economy would freeze up.

    Letting the High Street Banks simply go bust is not therefore an option. That was why the Govt stepped in and nationalised Northern Rock. It was the shareholders who lost out.

    Ireland should seek to keep the banks open as nationalised concerns and protect ordinary depositors so that business can continue and ensure at the same time that it is only the shareholders and the banks bond holders that lose out.

  • Comment number 41.

    For human endeavour to flourish, there has to be credit.
    Reason; Those with ideas and inventions do not necessarily have the financial ability to develop them, and therefore credit must be extended for them to fulfil their goal.

    If there has to be credit, there has to be interest.
    Reason: If the creditor loans ‘money’ to the debtor, the creditor cannot spend the interest ‘money’ back into the economy until such time as they have received it. Therefore more money must be created to allow the debtor to satisfy the payment of interest.

    If there has to be interest there has to be inflation.
    Reason: If quantity of money increases faster than the supply of all available items to purchase which given the above, it must do, then inflation must exist.

    If Government wishes to influence human endeavour it has to exercise control over credit.
    Reason: Governments are elected by the people to administer the affairs of the people for the benefit of the people. And as a consequence the overall direction to which credit is extended should be influenced by Government for the benefit of the people.

    For Government to exercise control over the extension of credit it must have an integrated national banking system.
    Reason: The banking system controls the extension of credit, and as such controls the direction of the nations economy, whether it be to prosperity, or bankruptcy.

  • Comment number 42.

    The banks are also being forced to shrink to a size that poses less risk to the Irish economy.

    This to me seems a chicken and egg question as much of the Irish economy appears to have been made up of banking .....

    My question is what is the UK's exposure to this banking mess, and can our banks handle the knock on when Greece, Portugal and some say Spain are in exactly the same position.



  • Comment number 43.

    I'm enjoying listening to the latest econtalk on the collapse of Lehman and the bailouts. There are a lot of great interviews on this podcast that touch many of the issues mentioned by people here:

    http://www.econtalk.org/

    ps roll on the crash in the UK - it's coming, as sure as the sun rises. Whack up interest rates and let's get this over with. It's like watching a car crash at 1/10th the speed.

  • Comment number 44.

    #43 - I would suggest that the govt/Bank of England (independent hmmmm) is trying to have a crash by stealth.

    Low interest rates, inflation at c 5%, weakening pound.

    By allowing inflation and minimising finance costs the govt can keep those in debts heads just above the water. If they can keep this con trick going I don't think house prices will drop, just stagnate - lets face it if they were not overpriced then people would be buying like crazy with interest rates as they are.

    Meanwhile prices and wages slowly rise until the point when houses are, once again, a sensible multiple of average wages - c 4 to 5 times.

    The problem is this will take about 10 years (like you say a car crash at 1/10 speed) - I'm not sure they can keep all the other plates spinning that long.

    I suspect that if interest rates were raised properly to try and control inflation then there would be terrible bankruptcy, rioting, unrest etc. In about 10 years we would, again, be back to 'normal'.

    Which is the better route - probably a crash by stealth - harder for the people to spot.

  • Comment number 45.

    Was the money pumped into Ireland doing nothing more than creating a 'false economy' ?

  • Comment number 46.

    41. At 21:37pm on 31st Mar 2011, Dempster wrote:
    For human endeavour to flourish, there has to be credit.
    Reason; Those with ideas and inventions do not necessarily have the financial ability to develop them, and therefore credit must be extended for them to fulfil their goal.
    ------------------------------------------------------------------------------------------------------------------------------------

    You have lost me at step one I'm afraid.

    People with inventive minds may well lack money. (You say they lack "financial ability", I think you really mean they just don't have money)

    To develop their ideas, they need money, I agree. What they do not need is credit.
    Credit is only one way (and in my view a very bad way) of getting money. Just as an example, the railway system of this country was built, in the mid 1800's, essentially without credit. That sort of endeavour is what joint stock companies were for. Brunel had a great idea (several, in fact). He didn't even think of credit, i.e. borrowing money from a bank. He found investors prepared to take a share of the enterprise, and the risk. A much better model, I think, than paying interest to a bank, or other lender.

  • Comment number 47.

    40. At 21:34pm on 31st Mar 2011, busby2 wrote:

    "If you simply let the High Street banks go bust, all the depositors (ie ordinary people like you and me) would lose their money and if the crisis then spread throughout the entire High Street banking system, the purchasing power of consumers would completely collapse and the entire economy would freeze up"

    .....

    Exactly! But wait, what happened to the Government guarantee for our deposits ?

    Anyone with any common sense can work out that if the brown stuff hits the fan the Government guarantee ain't worth jack as they don't have the money to bail out all the people. So what they will do is sell bonds to the super wealthy rich elite at 5% interest to raise the money, to pay us back our own money, but put us all even deeper in debt and create perpetual debts that tax payers, their kids, grandkids, great grandkids and so on will be paying for infinitum.


    "Letting the High Street Banks simply go bust is not therefore an option. That was why the Govt stepped in and nationalised Northern Rock. It was the shareholders who lost out."

    ..so why not just nationalise all banks and let the investors and shareholders take a haircut. At the same time weed out the greedy spivs from the system. It seems like the most sensible option and would be cheaper in the long run.

    Plus there is one small point that most people don't know. Your money in the bank is not your money, its the banks, and it only becomes your money when you actually withdraw it. You would be at the back of a very long queue of creditors should a bank go bust.

    Thats why every month, I withdraw all my cash from the bank apart from the total required to pay my direct debits +/- £20. In the current climate your money is actually safer under your pillow than in a bank. Better still, buy silver.

  • Comment number 48.

    Well I wonder if the investigations into the Irish banks (criteria used) were to be applied to the U.S. or the U.K. would reveal a similar disparity as to asset values on bank balance sheets.

    I suspect that writingsonthewall was right, the day of judgment cometh!

    The Irish must default and quickly or see what’s left of their country sink into a new dark age, in any event sooner or later as more EU economies slide into the same trench the outcome will be the same, I cant see any other outcome. Once started this ball will keep rolling.

    It must be obvious by now, even to a fool that it’s the banks that have been running the various economies and not the elected governments… the de-regulation of the western economies banking systems over the last thirty years or so is the culprit, but what can be done?

    This is a U.S. issue primarily with the EEC issues bringing up the rear. What chance is there that the U.S. will legislate against the banks to re-impose elements of the Glass–Steagall Act of 1933? I suspect none as the banks are to powerful having (now) their own people at the core of the U.S. economy - and the EEC - again none as they can’t act in isolation and also are afraid of the banks.

    So we await the collapse of the system, unless of course someone here knows better?

    We never learn do we this is the second time we’ve been down this road but this time it’s different of course!

    We’re all in this together will be ringing in my ears for all eternity.

    What a mess!

  • Comment number 49.

    Ireland is just not going to get out of this mess if it stays in the Euro. Surely the only long term solution is to come out and devalue its own currency.

  • Comment number 50.

    Warning - off topic.

    Mr Peston starts with an interesting comparison between a banks losses and the total revenue of the Irish government.

    For another comparison, when reading these numbers I can't help putting them in the context of the LGA pension scheme which is claimed to have a £110bn actuarial shortfall.

    The UK economy is much bigger than Ireland's but the fact that a single mismanaged pension scheme is underfunded by a sum which dwarfs the Irish rescue loans and is on a par with their entire economy, puts both the UK pension crisis and the Irish economic crisis in context.

  • Comment number 51.

    I'm no economist. But there's something here I just don't understand. The (private) banking sector in Ireland has "discovered" that it has billions of pounds of bad debt - I don't know; maybe they left it in a cupboard and forgot about it. The public sector (that's the Irish taxpayer) gets to take out eye-wateringly large loans from private banks to keep other private banks afloat by buying out the bad debt. I believe the technical term for this is "stupidity".

    The consequence is that the Government's credit rating takes a hit, because they are now saddled with enormous loan repayments associated with the purchase of bad debt, making it more likely that they will default. The result is that they will be paying back even more money because interest rates will be higher.

    The only two logical courses of action, surely, are to tell the banks to take a hike - a gesture of strength that will do no harm to the credit rating; or to simply get it over with and default.

  • Comment number 52.

    some correspondents have suggested that the Iceland solution was not so bad. How is Iceland doing now in fact?

  • Comment number 53.

    Ireland is also paying the price of honesty. I'm surprised Mr Peston hasn't mentioned that the UK banks have not been so transparent - or been made to be transparent - about the festering rubbish hidden in their accounts. If they were honestly revealed I am sure the numbers would dwarf the Irish ones. British banks and Irish banks are both wrecked.It's just the latter admit it.

  • Comment number 54.

    41. At 21:37pm on 31st Mar 2011, Dempster wrote:
    For human endeavour to flourish, there has to be credit.
    Reason; Those with ideas and inventions do not necessarily have the financial ability to develop them, and therefore credit must be extended for them to fulfil their goal.

    If there has to be credit, there has to be interest.
    Reason: If the creditor loans ‘money’ to the debtor, the creditor cannot spend the interest ‘money’ back into the economy until such time as they have received it. Therefore more money must be created to allow the debtor to satisfy the payment of interest.

    -----------------------------------------

    Except, of course, there is an alternative. If an inventor needs money then yes, credit is necessary. That does not necessitate interest in the usual sense of the term. The creditor could advance money in exchange for shares in the proceeds of the invention.

    The truth of the matter, Dempster, is that you have chosen an untypical example of credit to support your case. That vast majority of credit advanced is not directed toward "human endeavour", but toward a market in property that has been experiencing runaway inflation for two decades - inflation that was fuelled by the willingness of creditors to throw money at it.

  • Comment number 55.

    How about taking a broader look? Social Systems of Intelligent Agents, when in crisis, tend to broaden the support base. Don't look at who is parading and under which banner. Look how redistribution is managed to achieve the forementioned target. How redistribution of money and assets is preceded by old new ways of transmission of information. Interesting things happen...

  • Comment number 56.

    Will that be enough to cover the bonuses?

  • Comment number 57.

    So if Irish bankers have done even worse than UK bankers, they must be getting even bigger bonuses - right?

  • Comment number 58.

    With so many people needing haircuts, I think it's time to retrain to become a barber!

    Seriously though, I reckon the likes of Ireland, Greece, Spain and Portugal will have their EU membership temporarily revoked, and be booted out of the Euro, until they've sorted themselves out - but will they ever get back in (or indeed want to)? Then they can all default and devalue as much as they want without (too much) tainting the other EU states (including our beloved GB).

  • Comment number 59.

    55. At 23:45pm on 31st Mar 2011, Suav wrote:

    "...How about taking a broader look? Social Systems of Intelligent Agents, when in crisis, tend to broaden the support base. Don't look at who is parading and under which banner. Look how redistribution is managed to achieve the forementioned target. How redistribution of money and assets is preceded by old new ways of transmission of information. Interesting things happen..."

    ++++++++++++++++++++++++++++++++++++++++++++

    Someone wrote, perhaps in jest, implying the Irish and Japanese could come to a mutually beneficial arrangement. That might well, seriously, be true.



  • Comment number 60.

    The Dead Republic indeed, there just doesn't seem to be any kind of reaction at all to any of this from my compatriots. No anger, no marches (UK Uncut would seem unreal in Ireland), no mass protests or riots - just numbness! Are we expecting to be bailed out by the EU? Irish America? George Osbourne? Bono?
    Time to get off your arses and accept responsibility. Learn that work ethic thing from the Brits. Eire Nua.

  • Comment number 61.

    52. At 23:32pm on 31st Mar 2011, czetkin wrote:
    "some correspondents have suggested that the Iceland solution was not so bad. How is Iceland doing now in fact?"

    For your information, I wrote this on RP's earlier blog on Ireland .

    Since some posters have been mentioning Iceland, it may be of interest to read a blog comparing the performance of the Irish and Icelandic economies.

    It appears that any advantage that Ireland had by not defaulting when Iceland defaulted is unlikely to hold. It is also worth noting that in terms of purchasing power parity per capita, Iceland has declined significantly less that Ireland since the crash. This occurred during a period of substantial deflation in Ireland and substantial inflation in Iceland. This seems to show that if your economy is going to crash, then it is better to have your own currency however weak and not be part of a single currency union like Ireland.

    Iceland, of course, will not be faced by the same level of crippling debts moving forward.


    http://trueeconomics.blogspot.com/2011/02/27022011-ireland-v-iceland-economy-part.html


  • Comment number 62.

    47. At 22:44pm on 31st Mar 2011, stennylfc wrote:

    “Plus there is one small point that most people don't know. Your money in the bank is not your money, it’s the banks, and it only becomes your money when you actually withdraw it.”

    This is a perception based on the legal position that relates to deposits you have made (wages, money transfers and so on) as the “money” you store with the bank is itself only promissory in nature i.e. a piece of paper. If you stored (say) gold bullion with a bank in their vaults then it’s always yours so long as you have free and unhindered access to it in a way that enables you to realise its value.

    This was established by case law going back over two hundred years (it’s the banks money) and goes way beyond what is implied, meaning that the currency you hold (promissory notes or cash) “in your pocket”, also belong to the bank so its no good hiding them under your pillow because tomorrow these notes could be worth nothing. Being in possession of them “physically” is irrelevant as the outcome is the same… they’re worthless as payment for the exchange of goods or services (food for instance).

    The whole edifice relies on trust, something that the banks themselves have eroded in the vain attempt to make its senior manager’s rich, some almost beyond belief.

    When a banker stands before his god, on the day of judgement, will she/he be able to say that he lived their life honestly in support of the human race?

  • Comment number 63.

    The banking system is essentially a system that wants its cake and it all of it. We should go back to basics where we deposit money and they lend sensibly to make money and therefore that is their profit. Our money will be safe and sensible economy which may be boring will thrive.

    If they want to gamble with the money ie investment banking, which they may make alot of money which is not for depositors but the ceo etc, should they lose the bet, they should fail ie fold and go bankrupt. Why should tax payers therefore underwrite these? When we go to the casino, we know that we can come out without our shirts on and that is exactly what investment bankers know. They just want their cake and eat it and therefore hides behind too big to fail. That is a form of blackmail isn't it? Why are they employing rocket scientist etc to do the job which ceos do not understand the process and market these product?

    And when big banks fail, no body is answerable to it. Bizzarre?

    And they treaten to move overseas. Are they not being childish? Good times they get big rewards, buy big houses boats and flash cars. Bad times ie their mistake which nobody is answerable to, they get insurance from the tax payer.

    Its a nice situation they got themselves in. Time for sensible banking and governments should not be scared of these spoilt children.

    I say back to sensible banking. If they are adult enough to go to the casino and lose, they have nobody but themselves to blame. Somebody should be answerable by the way ie a ceo or cfo or somebody clever. To shift the blame is not good enough.

  • Comment number 64.

    #40. At 21:34pm on 31st Mar 2011, busby2 wrote:

    "If you simply let the High Street banks go bust, all the depositors (ie ordinary people like you and me) would lose their money and if the crisis then spread throughout the entire High Street banking system, the purchasing power of consumers would completely collapse and the entire economy would freeze up"

    .....
    #47. At 22:44pm on 31st Mar 2011, stennylfc replied:
    “Exactly! But wait, what happened to the Government guarantee for our deposits ?

    Anyone with any common sense can work out that if the brown stuff hits the fan the Government guarantee ain't worth jack as they don't have the money to bail out all the people”.

    Good point. But if the Govt owns the banks and the Bank of England, then surely all that is required is more quantitative easing? The guarantee is in sterling and we issue sterling. Once we nationalised Northern Rock the run on the bank stopped. Ireland doesn’t control the issue of Euros so that is far more of an issue for them.
    It is worth noting that in the case of the collapse of the Icelandic Banks, the Govt of Iceland has recovered nearly all the money from the sale of the assets of the banks concerned.

    I wrote

    "Letting the High Street Banks simply go bust is not therefore an option. That was why the Govt stepped in and nationalised Northern Rock. It was the shareholders who lost out."

    stennylfc replied:

    “..so why not just nationalise all banks and let the investors and shareholders take a haircut. At the same time weed out the greedy spivs from the system. It seems like the most sensible option and would be cheaper in the long run”.

    I agree.

    stennylfc added:

    “Plus there is one small point that most people don't know. Your money in the bank is not your money, its the banks, and it only becomes your money when you actually withdraw it. You would be at the back of a very long queue of creditors should a bank go bust.

    Thats why every month, I withdraw all my cash from the bank apart from the total required to pay my direct debits +/- £20. In the current climate your money is actually safer under your pillow than in a bank. Better still, buy silver”.

    That is why the Govt guarantees deposits of up to £85,000 per individual account (double in the case of a couple).

    One big problem nobody has touched on for some time on this blog is how the present economic climate has seriously damaged savings. With interest rates well under the current rate of inflation, there is no incentive to save and yet huge numbers of people depend on income from savings. At the same time we are told that unless the young save hard, they will not get a decent pension. Without savings, there is no investment in the future. Buying silver may or may not be a good idea from your viewpoint but it is not a productive use of your capital from the viewpoint of the country as it is not being invested through the banks in enterprises that can generate jobs.


  • Comment number 65.

    "...The cause of these losses? Well it's the continued weakness of the Irish economy..."

    No Mr Peston, that is either ignorance or a barefaced lie.

    The cause of these losses is these banks lend money they don't have, and they are not alone.

    The cause of these losses is fraud. Nothing more complex than that.

  • Comment number 66.

    Credit Default swaps are the biggest Ponzi scheme out there, selling the debt on to another institution and taking the profit has been nothing more than musical chairs with the banks.
    The time has come to ban them and split retail banking from high risk investment banking, shut down any bank which refuses to comply or tell them to leave the UK.
    Gambling with some one else's hard earned cash needs to be illegal, if a bank is beyond help wind it up and shut it down. This farce has gone on long enough, politicians are not representing the best interests of the electorate they are pampering to the people in the city.

  • Comment number 67.

    Morning Robert,
    so the Irish Banks have had to own up (because of EU rules) to having more liabilities than they previously stated last year during the stress tests. All Irish banks passed the stress tests last year ergo these stress tests were fraudulent!
    The Irish voted NO to some referendum or other and then were persuaded by the EU to vote YES to this referendum. Did they do the right thing -in hindsight?
    I wrote on this blog last year that the proposed EU bailout was short by about Euro 40 Billion... so here is a further Euro 24 Billion...still another Euro 16 Billion required (at least) by my calculation.
    As many posters then and now point out, this loaned money can NEVER be repaid by the shrinking Irish economy. They have had two years of austerity (for the poor) and further enrichment for the rich. None of the measures taken by the Irish politicians (of both persuasions) have even begun to address their financial problems, so what's to be done?
    If the EU wish to avoid a default of a member country, then they must provide some positive (not punitive) support. If the EU don't care about Ireland then the bond holders in Germany and France must prepare to write-down some staggering amounts.
    My own view is that Ireland must leave the Euro-zone and restart their own currency (with EU blessing and help).
    The same could be said for Greece and any other member state that is having to borrow from the IMF. This will become more imperative when the ECB begins to raise rates which, once they start, rates will quickly rise.

  • Comment number 68.

    Why don't Irish savers do the following. withdraw their money from the Irish banks then take it and deposit it into a mujtual bank or building society. Don't wait for a political solution to this farce, force them to all to face the financial consequences by undermining the whole banking system. Do it now before the Irish government remove their 100% savings gaurantee. Democracy can still work and democracy can still make them pay vote with your feet and switch ASAP. Once a run starts on the banks then leaving the Euro will happen double quick time. Good luck Ireland you need it.

  • Comment number 69.

    Why is nobody in jail?
    Why are none of the banking thieves and rogues in jail?
    Many people will have walked away with millions and millions of pounds from this.
    I ask again why is nobody in jail?

  • Comment number 70.

    Default
    Leave Euro
    Exports will be ridiculously cheap
    Property to overseas 'investors' will be ridiculously cheap
    Reduce Corp tax even further to suck in all the large companies.
    Stringent Bank regulations ( they won't need the big ones after all)

    Basically 2 fingers to the rest or Europe, and why shouldn't they ?

  • Comment number 71.

    How much longer then are we going to restructure our Governemnt loan to Ireland over?

    If this is true of the Irish Banks how can we ensure that British Banks aren's a) going to buy up toxic loans or, b) already in the mix for covering some of these losses. Yet the bonus culture carries on afoot.

    All those out there who say the banks aren't at fault for the current financial climate need to eat their cake and hope it doesn't choke them. That is if they can still afford any.

  • Comment number 72.

    "What I cant work out is just where all this money is going"

    Or where has it gone, more like. Simple scenario:

    - A housing boom starts, so developers start building houses. Say one borrows $5m off a bank to get started. The bank creates the $5m out of thin air, gives it to the developer and now the bank has $5m assets on its books based on the security of the value of the development (valued by a surveyor who does some back of the envelope calculations on what they might be worth if house prices keep rising.)

    Developer sells the houses at $250K a pop to individuals who go to the bank to take out a mortgage. Bank creates another $250K out of thin air, hands it to the punter who hands it to the developer (lets ignore the EAs and lawyers who carve their slice of this). Meanwhile the bank is receiving interest on all the money it's created from thin air, so big bonuses all round for the bankers.

    Developer is left with a tidy profit of $1M and then he goes back to the bank for a 10M loan on a new development. By now the houses have doubled in price to $500K a pop, so the bank happily approves the loan and the cycle goes on.

    It's a big ponzi scheme and only collapses when people can't afford to buy the houses at the bottom. Then the developer is in trouble as he can't pay back what he owes the bank (in theory he could, but the new expensive houses aren't selling, there's the interest to pay plus those couple of porsches he bought and the villa in Spain.) Developer goes bankrupt as he's no fool.

    So the bank is left with a load of property that it can't sell at the price it was valued for, and mortgages on properties that aren't worth what they were valued for either. Oops, big losses all round. So the bankers pay themselves more big bonusses and go to the government, telling them they are too big to fail...

  • Comment number 73.

    What was the point of doing new stress tests on Irish banks? They are insolvent, full stop. The country is insolvent, full stop.

    The same probably applies to a lot of other European Banks, the confidence trick is busted.We should just bite the bullet now. At least we would know in which direction we need to proceed.

    #3 and 12 not sure about the wotw. a bit late for him to still be at work?

  • Comment number 74.

    72. At 08:48am on 1st Apr 2011, uk_is_toast wrote:

    OK, so why does it matter if the 'money created out of thin air' is not repaid? It is not owed to anyone.

  • Comment number 75.

    This is NO April Fool....

    RP "Those, for example, who fear that Spain’s banks haven’t yet been forced to disclose the full extent of the losses they face on their exposure to the burst residential and commercial property bubble will not be reassured by events in Ireland today."

    Don't you mean...

    Those, for example, who fear that Britain’s banks haven’t yet been forced to disclose the full extent of the losses they face on their exposure to the burst residential and commercial property bubble will not be reassured by events in Ireland today.

    But you are too scared to talk about it......

  • Comment number 76.

    rock_and_roll_economics says the "irish wanted money for nothing",

    There was plenty of money given out "for nothing" by UK banks that fed the property boom here. What you don't understand is that Irish bank's balance sheet "black-holes" have been caused by reckless lending between bankers and property developers. If we had to take the series of cuts Irish taxpayers are bailing out the banks with, you'd see a lot more of what happened at the weekend in London.

    German banks recklessly leant to Irish banks, Irish banks recklessly leant to property developers, and property developers poured the money into commercially unviable commercial and residential developments (plus helicopters and race horses). The government didn't give a hoot because shortfalls in tax revenue from the real economy were propped up by property sale tax receipts. Not to mention there is a long history of "financial donations" of the previous government by property developers. See the equation? Very simple and corrupt.

    The Irish taxpayer is funding this mess. Don't worry about your money.

  • Comment number 77.

    One man's loss is another man's gain. So who has profited by how much from Ireland's losses?

  • Comment number 78.

    The game is up!
    The Irish are trapped in an ever decreasing debt spiral, the Greeks will default on their loans, the Portugese have overspent again and must soon require a bailout and there are others who are far from stable. How long will this stupidity be allowed to continue?
    The financial crisis, government mishandling and peoples own greed may have started the process, but the EU has bungled every single step since.
    Are we to be held as financial slaves so that the stupid dream of European unity and a single currency can continue to be foisted upon us by those incompetent unelected fools in Brussels?
    The EU is like Fukushima, it's in secret meltdown and the deadly fallout is increasingly contaminating everything around it!

  • Comment number 79.

    #70 Quite right,

    And its not just the banks in the UK. German Banks are exposed to a lot of this. The PIIGS might be in trouble right now but the brown stuff is about to hit the fan elsewhere.

  • Comment number 80.

    15,000 euros for every man, woman and child to pay back???...interest accruing daily....unemployment soaring....house prices crashing.....hmmnn....yet the easy move from Euro beaurocrats is to throw more billions of printed money or pretend funny money at a system on the brink yet again....like a patient on the table being kept alive through continuous injections of morphine...it relieves the pain but has only one ending. Global prices pressures of inflation are out of control, yet hapless Government leaders swear that interest rates cannot rise for fear of crushing their precious housing bubble.....these incompetent leaders are the cause of inflation which is hitting your pay packets and spending power by two years of gigantic money printing and speculation from stock markets pushing prices ever higher towards another sour ending.

    By the time this is finished and all dusted....house prices in Ireland alone will be down 90% in some areas.

  • Comment number 81.

    41. At 21:37pm on 31st Mar 2011, Dempster wrote:
    For human endeavour to flourish, there has to be credit.
    Reason; Those with ideas and inventions do not necessarily have the financial ability to develop them, and therefore credit must be extended for them to fulfil their goal.

    If there has to be credit, there has to be interest.
    Reason: If the creditor loans ‘money’ to the debtor, the creditor cannot spend the interest ‘money’ back into the economy until such time as they have received it. Therefore more money must be created to allow the debtor to satisfy the payment of interest.

    If there has to be interest there has to be inflation.
    Reason: If quantity of money increases faster than the supply of all available items to purchase which given the above, it must do, then inflation must exist.

    If Government wishes to influence human endeavour it has to exercise control over credit.
    Reason: Governments are elected by the people to administer the affairs of the people for the benefit of the people. And as a consequence the overall direction to which credit is extended should be influenced by Government for the benefit of the people.

    For Government to exercise control over the extension of credit it must have an integrated national banking system.
    Reason: The banking system controls the extension of credit, and as such controls the direction of the nations economy, whether it be to prosperity, or bankruptcy.

    ...........
    In essence, I think what you are saying is that democracy should have a direct input to the process of money creation, which is does not have as present. I agree. It would also mean that we could have our say, should anything go wrong with the process. For too long has the medium of exchange been in the hands of private interests. That is not democratic.


  • Comment number 82.

    The Irish finance minister Mr Ho No han is aptly named for what is to follow.

  • Comment number 83.

    #76

    The Irish taxpayer is funding this mess. Don't worry about your money.

    ----------------------------------------------------------------------------

    At the moment its the German French and British Taxpayers that are funding it!
    It is they who have mostly provided the loans.

  • Comment number 84.

    74. At 09:01am on 1st Apr 2011, AnotherEngineer wrote:
    72. At 08:48am on 1st Apr 2011, uk_is_toast wrote:

    OK, so why does it matter if the 'money created out of thin air' is not repaid? It is not owed to anyone.

    .................
    Can we not just park this issue. Its not getting us anywhere. There is evidence that money is created 'out of thin air' or rather banks loaning money actually create 'new' money to the economy through FRB. But as for the repayment thing no one seems to have the definitive answer.

  • Comment number 85.

    Ireland is broke. Spain - Portugal - Greece - Who knows where else and yet not one single banker has been jailed in Europe. It beggars belief!
    When a natural disaster strikes the best thing to do is to pull together and get on with it eg Japan. When an industrial accident happens companies are prosecuted eg 3 mile island - BP in the gulf etc But when bankers destroy entire economies no one is punished!

    Lets be honest about this, economics might pretend to be a science related to abstract concepts like growth but what it really is about is what happens to peoples lives.

    Last night on Crimewatch there were thugs and villains galore and all were vile and deplorable and theys should rightly be jailed.

    But there was a palpable respect for the woman who defrauded banks of £15 million in a mortgage fraud. The irony is that she is going to get caught and go to prison (if there are any left by then) and yet the fraudsters and crooks who literally stole entire countries are left to play golf and figure out what new scheme they can cook up.

    It is time to let the banks go to the wall. Governments need to stop pussy footing about: create new, clean institutions; write of 100% of the bad debt; lock up the perpetrators of this incredible scam and divert resources into new industry and education. If Singapore - China - Korea et al can create entire new economies in less than a generation I am damned sure we in the west can too.

  • Comment number 86.

    74. At 09:01am on 1st Apr 2011, AnotherEngineer wrote:
    72. At 08:48am on 1st Apr 2011, uk_is_toast wrote:

    OK, so why does it matter if the 'money created out of thin air' is not repaid? It is not owed to anyone.

    ----------------------------------------------------------------------------

    It is, unfortunately. That was the whole point. Based on the money in retail accounts the banks made excessive loans. If those loans are not repaid you and I will not have any funds in our accounts to pay for the basics. Remember the queues outside Northern Rock? That was their fear.

  • Comment number 87.

    Picking up on the thin air issue:
    “Where did the money come from? It came—and this is the
    most important single thing to know about modern banking—it
    came out of thin air. Commercial banks—that is, fractional reserve
    banks—create money out of thin air. Essentially they do it in the
    same way as counterfeiters. Counterfeiters, too, create money out
    of thin air by printing something masquerading as money or as a
    warehouse receipt for money. In this way, they fraudulently extract
    resources from the public, from the people who have genuinely
    earned their money. In the same way, fractional reserve banks
    counterfeit warehouse receipts for money, which then circulate as
    equivalent to money among the public. There is one exception to
    the equivalence: The law fails to treat the receipts as counterfeit.”
    (The Mystery of Banking by Murray Rothbard) available as free download.
    Havn't found anything about the impact of non repayment issue, so far. But bit busy today.

  • Comment number 88.

    4. At 18:04pm on 31st Mar 2011, ralphcameron wrote:

    What I cant work out is just where all this money is going. The sums are unimaginable and seem to just dissappear

    --------------

    It is an interesting question. All that seems to be happening at the moment is the passing around of debt from one sector or another. To get out of this situation, the money that was created out of that debt needs to be distributed. If the money is not being re-distributed then default must occur. And mass bankruptcy would vapourise the money that was created from the debt, so I expect the money holders do not want that to happen. The money holders are squeezing the debt holders to their own advantage. Call their bluff!

  • Comment number 89.

    At 18:04pm on 31st Mar 2011, ralphcameron wrote:
    What I cant work out is just where all this money is going. The sums are unimaginable and seem to just dissappear

    Dont be silly.
    The money has been paying bankers bonuses throughout the world for a number of decades.
    It works a bit like money laundering.
    Banks operate high risk investment & pay themselves high bonuses for having been prepared to take the risk.
    Risk falls short and causes losses to the banks.
    This in turn causes a run on the banks which the Tax payer has to throw money at to prevent a finacial melt down.
    Its just a legal way for the banks to steel money.

  • Comment number 90.

    > Mending the banks is only the beginning of Ireland's economic and financial rehabilitation.

    Yes. The best way to "rehabilitate" bankers is to flog the rank and file and fling the ringleaders off the Cliffs of Moher.

  • Comment number 91.

    Robert,

    Just a few months ago 'Fianna Fail' were annihilated at the polls in Ireland. This was no small thing. 'Fianna Fail' have lead Ireland for 60 of the last 80 years and lost almost all of there seats. This was the punishment that the Irish people placed upon them for locking them into the 85 billion Euro loan and plunging them into misery. A loan that 'Sinn Fein' described as 'Fraudulent' which is being used to repay bond holders and banks 100% of their crazy loans and financing bonuses as big as ever. It amounts to the biggest transfer of wealth from the people to the banks and bankers in history.

    My view is this loan is not worth the paper it is written on. I believe within a year, or 2 at the most the Irish will default and the German government will have to explain to the German people why it lent billions of their money money to the now extinct Irish government in order for it to bail out Irish banks oweing billions to German banks.

    Any argument about moral hazzard is now moot. The whole thing is the pathetic reality of weak leaders looking always for the path of least resistance.

    The fact is the interest payments on the Irish bail out loan will reach 90% of current income tax revenue by 2012. Think about it for a moment. Every enlargement of the debt simply enlarges the interest payment; which we can see is already completely beyond being sustained.

    There is going to be a collision. The Irish simply cannot pay; besides the people elected a government to represent them not the bankers bonuses. Default means not paying this silly fraudalent promise to pay. You cannot reposess a country. Ireland will still produce things for export and sell them to buyers overseas in exchange for money. Some of this money can still be taxed and spent by a responsible government.

    They can start over.

    This is one simple method of beginning the clear up of the bankers ponzi mess. What exactly do people with nothing lose by a default?
    Nothing but they regain their future.

    The bankers must learn that if they make stupid loans then they will lose stupid amounts of money.

    The wealthy suffer most in a default not the people.

  • Comment number 92.

    Oh, but it's so exciting, isn't it? Watching the cracks open out and I've the impression the best analogy is a dam. EU officials, central banking administrators, politicians all running round attempting to plug the holes but the pressure behind is growing all the time. Will it burst through in Dublin, in Lisbon, in Athens or even Madrid or London? It dont really matter because then follows the inundation.

    Now, how can I bring Noah into this analogy?

  • Comment number 93.

    Re No.81 "In essence, I think what you are saying is that democracy should have a direct input to the process of money creation, which is does not have as present. I agree. It would also mean that we could have our say, should anything go wrong with the process. For too long has the medium of exchange been in the hands of private interests. That is not democratic."

    Yea, but do the names CapitaLand, Temasek, GIC mean anything to you. But Singapore is a "democracy" ? Whatever, it is probably the future.


  • Comment number 94.

    Whilst you can't fail to feel sympathy for ordinary Irish people, their children and grandchildren who will suffer for this, you can't help but also notice the re-emergence of an age-old Irish characteristic...IT'S SOMEONE ELSE'S FAULT!

    To the traditionally evil Brits we can now also add the French, the Germans, the ECB and the whole Brussels bureaucracy. It's the rerun of an old story. Hardly anyone posting on these threads has the insight to say "we just went crazy and lost any sort of sense of what we were doing!" When times get tough, it's so seductively tempting to "blame the foreigner!" To respectfully paraphrase a popular Irish saying, how long before the equivalent of "Providence bought us the credit crunch but foreigners caused the Depression!" is heard?

    There has been corruption. There has been financial imprudence on an industrial scale but, to use a cliche, it takes two to tango! All routine economic activity is based around the concept of there being a willing buyer and a willing seller. Financial institutions generally respond to demand and there was a huge demand for mortgages and development finance. I'm not Irish but, I'm willing to bet that the property boom, far from being the secret creation of a tiny elite, was the fevered talk over every dinner table for years. I imagine it was a bit like the UK in the 80s when obsession with property finally led to some people wearing T-Shirts with "I Don't Give a **** What Your House is Worth!" written on them. But nobody cared because Ireland was suddenly one of the richest countries in Europe, without anyone asking why?

    Speculation was rampant. Everyone was "trading-up" to reflect their new wealth. 400,000 new house were built in a country with less than 2 million households. That is a collective madness if I ever saw it! When the opportunity arose, Irish people behaved exactly like their counterparts in the UK and dived into property. Now the UK has had two big housing slumps since 1990 caused by this behaviour, something this is damaging but not totally disastrous. The difference in Ireland has been the epic scale of borrowing compared to the size of the underlying economy.

    To thrash around and angrily accuse everyone of sharp practice, to threaten default "because it's the foreigners' own fault for agreeing to lend the money in the first place" is simply self-deluding and disingenuous. It's the addict blaming the dealer!

    No sane person wishes a generation of grinding austerity on the Irish people, but a great deal more sympathy for their position could stem from some collective contrition rather than all the angry denial and blame. The way out must lie in a planned default, agreed with creditors and the ECB. Investors must take a haircut but at the same time there cannot be debt forgiveness and plenty of winks and roguish eye-twinkling all round. Ireland should withdraw from the Euro and settle it's economy down using a new "Euro-Punt", with an option to re-enter the Euro at a later date at an appropriate rate of exchange.

    Pain all round, but hopefully settled inside ten years, rather than over several generations!

  • Comment number 95.

    You can only marvel at the intelligence of all these Eurozone governments who encouraged banks to lend to speculators and bad risks in much the same way as Gordon Brown did.

  • Comment number 96.

    91. At 10:43am on 1st Apr 2011, RedHairedGirl wrote:
    The bankers must learn that if they make stupid loans then they will lose stupid amounts of money.

    The wealthy suffer most in a default not the people.

    -------

    I like it.

    The wealthy want to keep the stupid loans out there so that they can keep the stupid money created from it.

  • Comment number 97.

    Why did we bail out the banks and not let the losses fall where they will?

    Because, ultimately, a lot (more) of that pain would be felt by home-owners, or to give them their political name: voters. I'm sure the politicians projected the likely results for themselves of such a course of action.

    Many have turned the increased "value" of their homes into a lifestyle that is simply not sustainable. And of course governments have turned tax receipts based on asset inflation into new/better services. Weirdly no-one (this is worth repeating - no-one) sees this as their fault or sees their behaviour as in any way complicit or irresponsible.

    We all behaved as if the inflation in values had been "earned" or was "real".

  • Comment number 98.

    #60

    "The Dead Republic indeed, there just doesn't seem to be any kind of reaction at all to any of this from my compatriots. No anger, no marches (UK Uncut would seem unreal in Ireland), no mass protests or riots - just numbness! Are we expecting to be bailed out by the EU? Irish America? George Osbourne? Bono?
    Time to get off your arses and accept responsibility. Learn that work ethic thing from the Brits. Eire Nua."

    Or leave. A well educated population speaking the international language of business, why stay in the rain?
    As far as I can see that's the way a default works in a single currency area where the tax raising authority cannot be 'taken over' by a higher authority. The population (and hence the economy) reduces to a level where it's self sustaining.

    Its just not a good time to be old and Irish, But, to be quite honest, it probably never has been.

  • Comment number 99.

    "65. Tim Putnam wrote:


    "...The cause of these losses? Well it's the continued weakness of the Irish economy..."

    No Mr Peston, that is either ignorance or a barefaced lie.

    The cause of these losses is these banks lend money they don't have, and they are not alone.

    The cause of these losses is fraud. Nothing more complex than that."
    ========================

    Robert is neither ignorant nor a liar

    At the time the loans were made the bank who lent funded those loans from a combination of shareholder funds, deposits and wholesale loans to the bank. In truth there is in one sense no real difference between a wholesale loan and a deposit from you or I, both are loans to the bank of someone else's money.

    This is not fraud.

    The problem was that the banks became too reliant on the wholesale lending market. There is one big difference between the bank deposit market and the wholesale lending market and that is volatility. By and large people do not en masse withdraw their entire accounts (that is known as a bank run and also causes banks to collapse). The wholesale market though can close down either generally or with respect to one bank very quickly.

    That is an additional risk which banks need to take into account, problem was that because the wholesale market had not contracted (never mind actually closed) for decades the banks decided that the risk was no longer relevant. Unfortunately whilst such a view is understanderable, it was wrong.

  • Comment number 100.

    So it was the gross stupidity/gullability of those classically s/g people that did it and not the financiers/speculators. So dat's OK den an dey can go back to dere peat heated cottages, drink Guiness and t'ink o kissin' de Blarney Stone as dey while awa' dere time, dreamin'.

    And our excuse? And our outcome?

    As money is extracted from the system and ever more tightly controlled its value/cost increases. Interest rates are pushed up at all the fringes and the pips squeezed further. More money is removed from the system and the process continues. This "line of least resistance" [91] taken by the weak has the feel of lambs being marched to slaughter!

    The bluff [88]of those bankers on high is being used as by people who perceive no personal risk [89]. Indeed for the billion pound bonus payers there is no risk as it's close to a monopoly situation - with such total control over the money supply they can draw off as much as they want for personal consumption cos who's gonna stop them?

    So, Anglophone, [94], I think you're more than a touch dismissive if you make the whole of Ireland culpable for their collective debt. And now, just as in the Victorian Potato famine, it's the ordinary people who only ever can react to circumstances, that you say must carry the can.

 

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