
Was it worth paying €41.7bn to bail out Irish banks? - howard941
https://www.irishtimes.com/business/financial-services/was-it-worth-paying-41-7bn-to-bail-out-irish-banks-1.4036792
======
zarro
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
> 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
I think you calling our current system "capitalist" is giving it more credit
than its due.

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chollida1
[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
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
> 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
>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.

------
bjourne
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.

~~~
onlyrealcuzzo
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.

------
orra
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.

------
lazyjones
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
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.

------
gadders
Michael Lewis wrote a good article about the Irish bailout in Vanity Fair:
[https://www.vanityfair.com/news/2011/03/michael-lewis-
irelan...](https://www.vanityfair.com/news/2011/03/michael-lewis-
ireland-201103)

"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
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
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.

~~~
dageshi
Yes, but also, the euro simply wasn't designed to handle the magnitude of what
was happening in the financial crisis, it didn't have a central bank capable
and government capable of stepping in to support the banks the way the FED did
in the US.

In other words, they were trying to prevent pure unmitigated chaos, the kind
of chaos that leads to outright depressions.

This crisis was only 10 years ago and already people seem to forget just how
bad it was.

~~~
purple_ducks
That's unrelated. My point was the Irish government could have burned the
bondholders (German/French banks) and let the losses hit their profits instead
of piling the Irish taxpayers under a mountain of (private) debt.

~~~
dageshi
It isn't unrelated, it is entirely the point. The Irish don't have their own
currency, when you don't have your own currency you don't ultimately control
your own affairs you share them with the others who use that currency.

~~~
purple_ducks
How would the burning of private bondholders to the tune of €140 billion have
affected the Euro currency?

> you don't ultimately control your own affairs you share them with the others
> who use that currency

The currency had nothing to do with it. The only thing which would have
absolutely forced them to stand over it would have been existing EU law -
which there was none.

The European Central Bank can't legally stop issuing currency to Ireland just
because some French or German banks got burnt.

~~~
dageshi
Because the euro isn't just a currency, it's the entire banking system as
well. The euro doesn't work as a currency without a banking system to transmit
it because people have bank accounts with banks... not the central bank.

If a bunch of German/French banks suddenly get 40billion in losses what
happens next? They will have to panic sell their remaining good assets to
remain solvent, that transmits the problem on to the other banks that they
have invested in. Because the EU banks all tended to lend money to each other.

So you end up with the problem transmitting around europe (and beyond) but
it's worse because everyone is trying to sell everything at the same time to
remain solvent.

------
nerdponx
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
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
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
Because there aren't any insolvent-but-otherwise-fine banks around?

~~~
oh_sigh
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?

~~~
rayiner
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.

------
Doubl
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
> 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.

------
m0llusk
Have you looked at their balance sheets recently? Irish banks will be back
again for more sooner than you might expect.

------
NTDF9
How about not having a financial system based on debt and loans?

No more need to have a crisis

