9 ms·

Was it worth paying €41.7bn to bail out Irish banks?

78 points by howard941 7y ago

nerdponx 7y ago
How did this bailout go so bad? At least in the US the government eventually (kind of) made money on its TARP program. Would be interested to know how the programs differed.
- mtgx 7y ago
  Did the US gov really make any money on it, or did it pay the banks through another channel (such as non-returnable Fed-printed loans) so the banks can "give back the TARP money." (a PR win for both the gov and the banks, but still a net loss for the public). I may have read something on this a few years back.
  - oh_sigh 7y ago
    There's also a question of why the government wouldn't continually try to maintain this revenue stream if they were indeed making profits, as opposed to only using it as a last ditch effort to contain widespread damage?
    - bobcostas55 7y ago
      Because there aren't any insolvent-but-otherwise-fine banks around?
      - oh_sigh 7y ago
        So is the argument that the bailout was zero-sum, but the government came out ahead(and the banks lost), or was it value producing to bail the banks out?
        wmil 7y ago
        I think the argument is that the government bailout was much simpler than having each bank go through a bankruptcy negotiations with their various creditors. Many of the debtees probably came out behind what they could have negotiated, but there was a net gain by avoiding all of that work to negotiate.
        rayiner 7y ago
        The theory of bailouts is that they are value-destruction-avoiding, like bankruptcy restructuring. The banks lost a lot of money on the mortgage backed securities, but lost much less than they would have had those assets been sold at fire sale. The government came out slightly ahead; it got a part of what value wasn’t destroyed in a catastrophic unwinding of the banks.
      - salawat 7y ago
        How can a bank be insolvent, but otherwise fine? That seems an oxymoron to me. Like saying of a company that it's fine because everyone came to work, but the company can't pay anyone. That is not fine.
        rumanator 7y ago
        > How can a bank be insolvent, but otherwise fine? They may owe a lot to a specific creditor (or group of creditors) but otherwise have a sound, profitable business.
  - nerdponx 7y ago
    Not sure why you're being downvoted, the US didn't really make money: https://www.nationalreview.com/2015/01/overselling-tarp-myth-15-billion-profit-matt-palumbo/ https://www.nationalreview.com/2015/01/overselling-tarp-myth... Hence my "kind of"
- anonymousDan 7y ago
  As the article states, our finance minister should have been more selective in terms of the banks it decided to guarantee. However this is perhaps easier to say in retrospect. At the time it might not have been clear exactly which banks were irredeemable.
- gbronner 7y ago
  Irish banks had more leverage and more inflated assets.
chollida1 7y ago
https://www.coursera.org/learn/global-financial-crisis https://www.coursera.org/learn/global-financial-crisis This is a great course about the financial crisis of 2008. They walk through the similarities between the Irish bailout and the American bailout of their banks and then they walk through the differences and point out why the Irish bailout turned out soo poorly and why the American bailout was a great success. The course is very approachable for even a novice in monetary theory.
- boomboomsubban 7y ago
  I haven't taken the course, but one of the instructors personally benefits from more people thinking the American bailout was a great success. Their free course for people without any prior knowledge is unlikely to be a trustworthy source.
  - chollida1 7y ago
    > I haven't taken the course, but one of the instructors personally benefits from more people thinking the American bailout was a great success. Their free course for people without any prior knowledge is unlikely to be a trustworthy source. Alternatively you could argue that no one knows the material better given that they were there at ground zero and the ones who actually made the decisions. I mean, I see where you are coming from but I hope I never become as jaded as your comment comes across as being:)
    - boomboomsubban 7y ago
      >Alternatively you could argue that no one knows the material better given that they were there at ground zero and the ones who actually made the decisions. This isn't an alternative. This can be true, and they still have no reason to present an unbiased view in this course. You should definitely be jaded enough to question the truth of someone spending billions in public money.
zarro 7y ago
Part of the problem is too much centralization of the control of $. This arrangement could be fine if people (and companies) where held accountable for their mistakes (No bailouts). What I mean: Normally, you wouldn't trust all your money to one bank or financial adviser, because if they make bad bets you could lose your money. But because of the bailouts, it puts an hedge on your downside risk, so you feel more comfortable with outsourcing the responsibility to a small number of parties to manage your money, because if they fail, you in part (mostly them), will be bailed out. This ignores the fact that there were individuals that were more responsible with their money that ended up being the losers in this arrangement and were extorted of their money. I'm not saying that we shouldn't have bailouts, but what I am saying is that if we are forced to do it, we should do it to such an extent that it addresses the root cause and provides economic incentive to be more accountable for ones actions.
- xapata 7y ago
  > too much centralization The purpose of a capitalist, laissez faire economy is to decentralize control. Turns out the result is central planning by a cartel of magacorps.
  - zarro 7y ago
    I think you calling our current system "capitalist" is giving it more credit than its due.
  - danielovichdk 7y ago
    Yup. It's called corporatism and had nothing to due with capitalism, which in fact is a positive thing. On a theo' level
- chris11 7y ago
  >> we should do it to such an extent that it addresses the root cause and provides economic incentive to be more accountable for ones actions. I agree with that. Bailouts should usually be coupled with regulation to limit the need for a bailout the next time a failure occurs.
gadders 7y ago
Michael Lewis wrote a good article about the Irish bailout in Vanity Fair: https://www.vanityfair.com/news/2011/03/michael-lewis-ireland-201103 https://www.vanityfair.com/news/2011/03/michael-lewis-irelan... "Not long ago I spoke with a former senior Merrill Lynch bond trader who, on September 29, 2008, owned a pile of bonds in one of the Irish banks. He’d already tried to sell them back to the bank for 50 cents on the dollar—that is, he’d offered to take a huge loss, just to get out of them. On the morning of September 30 he awakened to find his bonds worth 100 cents on the dollar. The Irish government had guaranteed them! He couldn’t believe his luck. Across the financial markets this episode repeated itself. People who had made a private bet that went bad, and didn’t expect to be repaid in full, were handed their money back—from the Irish taxpayer. In retrospect, now that the Irish bank losses are known to be world-historically huge, the decision to cover them appears not merely odd but suicidal. A handful of Irish bankers incurred debts they could never repay, of something like 100 billion euros. They may have had no idea what they were doing, but they did it all the same. Their debts were private—owed by them to investors around the world—and still the Irish people have undertaken to repay them as if they were obligations of the state. "
- dageshi 7y ago
  It was panic. They guaranteed it, probably with a lot of pressure from other EU nations to stop a run on other weaker banking systems around the EU. Haggling with investors to only return some of the money would've ended up in court and would've taken forever, they couldn't afford the time.
  - purple_ducks 7y ago
    From the parent article: > A political investigative blog called Guido Fawkes somehow obtained a list of the Anglo Irish foreign bondholders: German banks, French banks, German investment funds, Goldman Sachs. (Yes! Even the Irish did their bit for Goldman.) Germany wanted to protect their own banks(/ers) and investment funds from losing money to the detriment and disregard of everyone and everything else.
    - 7y ago
orra 7y ago
I doubt it. Don't forget: consumer bank balances were generally protected by government guarantee, so ‘people would have lost all their money without the bailout’ just isn’t true. Bailing out these failing for-profit businesses—privatising profits and socialising losses—is a moral hazard. That is unfair and bad for competition. But there is more than that. Even if the money was apparently eventually repaid, like in the UK, then even if you ignore inflation, this had a huge opportunity cost. The money could have been put to good use, but instead the public debt ratcheted up, which became an excuse for austerity.
m0llusk 7y ago
Have you looked at their balance sheets recently? Irish banks will be back again for more sooner than you might expect.
NTDF9 7y ago
How about not having a financial system based on debt and loans? No more need to have a crisis
lazyjones 7y ago
Not a single mention of Iceland, which decided not to bail out their banks (mostly because they couldn't afford it), and didn't fare so badly with it.
- rumanator 7y ago
  IIRC Iceland's banks provided services mostly to clients outside Iceland, thus the impact of their default affected foreigners who had a negligible role on Iceland's economy.
- ggm 7y ago
  Excuse me: the UK basically threatened Iceland unless British debt took priority for refund, bullied them and made Icelandic citizens wear the consequences. You cannot say Iceland did not bail out the banks, they nationalised significant parts of the bank debt to get rid of a problem.
bjourne 7y ago
Government says we can't spend money to help the homeless, or the poor, or the sick. The budget is tight and we can't afford it. But when it comes to bailing out banks, there is endless supply of money coming their way. It's strange how that works.
- ben_jones 7y ago
  My naive understanding is that governments profit from these bailouts. From this article: > The final cost of the bank bailouts has still to be determined and there are a number of factors at play. Nama is projecting to return a surplus of €4 billion to the exchequer but that could go either way and we still don’t have a firm and fast date for its winding up. The US did at least [1]. [1]: https://money.usnews.com/investing/articles/2017-01-19/financial-crisis-bailouts-have-earned-taxpayers-billions https://money.usnews.com/investing/articles/2017-01-19/finan...
- onlyrealcuzzo 7y ago
  I'm not sure how it worked in Ireland. But when we bailed the banks out in the US, it was through a loan that they paid back in a year. Lending someone IMAGINARY money to avoid, potentially, the next Great Depression doesn't really seem like a bad decision, to me. Giving REAL money to the homeless is much more controversial. I'm not saying I oppose it. It's just this notion of one or the other -- at least from how things went down in the states -- doesn't really make sense. It was apples to oranges.
Doubl 7y ago
USC a tax of 8% on all earnings before any deductions, such as pension contributions which is where normal income tax kicks in has been in place since the crash. It was supposed to be temporary but will probably never be repealed. That and having the highest mortgage rates in Europe in order to get the banks into profitability are how the ordinary people will be paying for this for the rest of their lives.
- purple_ducks 7y ago
  > having the highest mortgage rates in Europe in order to get the banks into profitability That is not the case. Any EU bank can sell mortgages in Ireland. They choose not to because there is not a functioning property market. Homeowners who don't pay their mortgage can't be kicked out of their home by the banks and also those same homeowners just can't walk away and put the keys back in the letterbox. The first reason being the most problematic.

78 points by howard941 7y ago

How did this bailout go so bad? At least in the US the government eventually (kind of) made money on its TARP program. Would be interested to know how the programs differed.

mtgx 7y ago
Did the US gov really make any money on it, or did it pay the banks through another channel (such as non-returnable Fed-printed loans) so the banks can "give back the TARP money." (a PR win for both the gov and the banks, but still a net loss for the public). I may have read something on this a few years back.
- oh_sigh 7y ago
  There's also a question of why the government wouldn't continually try to maintain this revenue stream if they were indeed making profits, as opposed to only using it as a last ditch effort to contain widespread damage?
  - bobcostas55 7y ago
    Because there aren't any insolvent-but-otherwise-fine banks around?
    - oh_sigh 7y ago
      So is the argument that the bailout was zero-sum, but the government came out ahead(and the banks lost), or was it value producing to bail the banks out?
      - wmil 7y ago
        I think the argument is that the government bailout was much simpler than having each bank go through a bankruptcy negotiations with their various creditors. Many of the debtees probably came out behind what they could have negotiated, but there was a net gain by avoiding all of that work to negotiate.
      - rayiner 7y ago
        The theory of bailouts is that they are value-destruction-avoiding, like bankruptcy restructuring. The banks lost a lot of money on the mortgage backed securities, but lost much less than they would have had those assets been sold at fire sale. The government came out slightly ahead; it got a part of what value wasn’t destroyed in a catastrophic unwinding of the banks.
    - salawat 7y ago
      How can a bank be insolvent, but otherwise fine? That seems an oxymoron to me. Like saying of a company that it's fine because everyone came to work, but the company can't pay anyone. That is not fine.
      - rumanator 7y ago
        > How can a bank be insolvent, but otherwise fine? They may owe a lot to a specific creditor (or group of creditors) but otherwise have a sound, profitable business.
- nerdponx 7y ago
  Not sure why you're being downvoted, the US didn't really make money: https://www.nationalreview.com/2015/01/overselling-tarp-myth-15-billion-profit-matt-palumbo/ https://www.nationalreview.com/2015/01/overselling-tarp-myth... Hence my "kind of"
anonymousDan 7y ago
As the article states, our finance minister should have been more selective in terms of the banks it decided to guarantee. However this is perhaps easier to say in retrospect. At the time it might not have been clear exactly which banks were irredeemable.
gbronner 7y ago
Irish banks had more leverage and more inflated assets.

chollida1 7y ago

https://www.coursera.org/learn/global-financial-crisis https://www.coursera.org/learn/global-financial-crisis This is a great course about the financial crisis of 2008. They walk through the similarities between the Irish bailout and the American bailout of their banks and then they walk through the differences and point out why the Irish bailout turned out soo poorly and why the American bailout was a great success. The course is very approachable for even a novice in monetary theory.

boomboomsubban 7y ago
I haven't taken the course, but one of the instructors personally benefits from more people thinking the American bailout was a great success. Their free course for people without any prior knowledge is unlikely to be a trustworthy source.
- chollida1 7y ago
  > I haven't taken the course, but one of the instructors personally benefits from more people thinking the American bailout was a great success. Their free course for people without any prior knowledge is unlikely to be a trustworthy source. Alternatively you could argue that no one knows the material better given that they were there at ground zero and the ones who actually made the decisions. I mean, I see where you are coming from but I hope I never become as jaded as your comment comes across as being:)
  - boomboomsubban 7y ago
    >Alternatively you could argue that no one knows the material better given that they were there at ground zero and the ones who actually made the decisions. This isn't an alternative. This can be true, and they still have no reason to present an unbiased view in this course. You should definitely be jaded enough to question the truth of someone spending billions in public money.

zarro 7y ago

Part of the problem is too much centralization of the control of $. This arrangement could be fine if people (and companies) where held accountable for their mistakes (No bailouts). What I mean: Normally, you wouldn't trust all your money to one bank or financial adviser, because if they make bad bets you could lose your money. But because of the bailouts, it puts an hedge on your downside risk, so you feel more comfortable with outsourcing the responsibility to a small number of parties to manage your money, because if they fail, you in part (mostly them), will be bailed out. This ignores the fact that there were individuals that were more responsible with their money that ended up being the losers in this arrangement and were extorted of their money. I'm not saying that we shouldn't have bailouts, but what I am saying is that if we are forced to do it, we should do it to such an extent that it addresses the root cause and provides economic incentive to be more accountable for ones actions.

xapata 7y ago
> too much centralization The purpose of a capitalist, laissez faire economy is to decentralize control. Turns out the result is central planning by a cartel of magacorps.
- zarro 7y ago
  I think you calling our current system "capitalist" is giving it more credit than its due.
- danielovichdk 7y ago
  Yup. It's called corporatism and had nothing to due with capitalism, which in fact is a positive thing. On a theo' level
chris11 7y ago
>> we should do it to such an extent that it addresses the root cause and provides economic incentive to be more accountable for ones actions. I agree with that. Bailouts should usually be coupled with regulation to limit the need for a bailout the next time a failure occurs.

gadders 7y ago

Michael Lewis wrote a good article about the Irish bailout in Vanity Fair: https://www.vanityfair.com/news/2011/03/michael-lewis-ireland-201103 https://www.vanityfair.com/news/2011/03/michael-lewis-irelan... "Not long ago I spoke with a former senior Merrill Lynch bond trader who, on September 29, 2008, owned a pile of bonds in one of the Irish banks. He’d already tried to sell them back to the bank for 50 cents on the dollar—that is, he’d offered to take a huge loss, just to get out of them. On the morning of September 30 he awakened to find his bonds worth 100 cents on the dollar. The Irish government had guaranteed them! He couldn’t believe his luck. Across the financial markets this episode repeated itself. People who had made a private bet that went bad, and didn’t expect to be repaid in full, were handed their money back—from the Irish taxpayer. In retrospect, now that the Irish bank losses are known to be world-historically huge, the decision to cover them appears not merely odd but suicidal. A handful of Irish bankers incurred debts they could never repay, of something like 100 billion euros. They may have had no idea what they were doing, but they did it all the same. Their debts were private—owed by them to investors around the world—and still the Irish people have undertaken to repay them as if they were obligations of the state. "

dageshi 7y ago
It was panic. They guaranteed it, probably with a lot of pressure from other EU nations to stop a run on other weaker banking systems around the EU. Haggling with investors to only return some of the money would've ended up in court and would've taken forever, they couldn't afford the time.
- purple_ducks 7y ago
  From the parent article: > A political investigative blog called Guido Fawkes somehow obtained a list of the Anglo Irish foreign bondholders: German banks, French banks, German investment funds, Goldman Sachs. (Yes! Even the Irish did their bit for Goldman.) Germany wanted to protect their own banks(/ers) and investment funds from losing money to the detriment and disregard of everyone and everything else.
  - 7y ago

orra 7y ago

I doubt it. Don't forget: consumer bank balances were generally protected by government guarantee, so ‘people would have lost all their money without the bailout’ just isn’t true. Bailing out these failing for-profit businesses—privatising profits and socialising losses—is a moral hazard. That is unfair and bad for competition. But there is more than that. Even if the money was apparently eventually repaid, like in the UK, then even if you ignore inflation, this had a huge opportunity cost. The money could have been put to good use, but instead the public debt ratcheted up, which became an excuse for austerity.

m0llusk 7y ago

Have you looked at their balance sheets recently? Irish banks will be back again for more sooner than you might expect.

NTDF9 7y ago

How about not having a financial system based on debt and loans? No more need to have a crisis

lazyjones 7y ago

Not a single mention of Iceland, which decided not to bail out their banks (mostly because they couldn't afford it), and didn't fare so badly with it.

rumanator 7y ago
IIRC Iceland's banks provided services mostly to clients outside Iceland, thus the impact of their default affected foreigners who had a negligible role on Iceland's economy.
ggm 7y ago
Excuse me: the UK basically threatened Iceland unless British debt took priority for refund, bullied them and made Icelandic citizens wear the consequences. You cannot say Iceland did not bail out the banks, they nationalised significant parts of the bank debt to get rid of a problem.

bjourne 7y ago

Government says we can't spend money to help the homeless, or the poor, or the sick. The budget is tight and we can't afford it. But when it comes to bailing out banks, there is endless supply of money coming their way. It's strange how that works.

ben_jones 7y ago
My naive understanding is that governments profit from these bailouts. From this article: > The final cost of the bank bailouts has still to be determined and there are a number of factors at play. Nama is projecting to return a surplus of €4 billion to the exchequer but that could go either way and we still don’t have a firm and fast date for its winding up. The US did at least [1]. [1]: https://money.usnews.com/investing/articles/2017-01-19/financial-crisis-bailouts-have-earned-taxpayers-billions https://money.usnews.com/investing/articles/2017-01-19/finan...
onlyrealcuzzo 7y ago
I'm not sure how it worked in Ireland. But when we bailed the banks out in the US, it was through a loan that they paid back in a year. Lending someone IMAGINARY money to avoid, potentially, the next Great Depression doesn't really seem like a bad decision, to me. Giving REAL money to the homeless is much more controversial. I'm not saying I oppose it. It's just this notion of one or the other -- at least from how things went down in the states -- doesn't really make sense. It was apples to oranges.

Doubl 7y ago

USC a tax of 8% on all earnings before any deductions, such as pension contributions which is where normal income tax kicks in has been in place since the crash. It was supposed to be temporary but will probably never be repealed. That and having the highest mortgage rates in Europe in order to get the banks into profitability are how the ordinary people will be paying for this for the rest of their lives.

purple_ducks 7y ago
> having the highest mortgage rates in Europe in order to get the banks into profitability That is not the case. Any EU bank can sell mortgages in Ireland. They choose not to because there is not a functioning property market. Homeowners who don't pay their mortgage can't be kicked out of their home by the banks and also those same homeowners just can't walk away and put the keys back in the letterbox. The first reason being the most problematic.