The Great Irish Bank Collapse Sweepstakes - and they're off!
Monday, September 29, 2008 at 09:52PM 
Well, it's not the end of the world, but it's going to feel like it for quite a while. The US government bail-out plan was voted down by Congress a few hours ago. If the plan had been passed, it would have given the illusion that things were going to be OK. (Things would not have been OK.)
Now, we won't even have the comforting illusion.
An an Irishman with my fortune (eleven euro) in an Irish bank account, I have a keen interest in the future of the Irish banking system. The main question seems to me to be, in what order will they fail? I reckon it's going to be a photo-finish for first place between Anglo Irish Bank and Irish Life and Permanent. (Though will dark horse Irish Nationwide Building Society make a late surge for the line?) After that, who knows. But they're all banjaxed.
Every Irish bank is massively over-exposed to Irish and UK residential and commercial property, and to Irish developers who can no longer service their vast loans. The Irish banks have been keeping their developers afloat artificially for the past year, in the hope things would miraculously turn around. Things haven't, they won't for years, and soon all the bad debts will have to appear on the books, dragging both banks and developers under. If the Germans and Swiss find the books of the Irish banks too revolting, and can't bring themselves to purchase the wreckage, then the Irish government (with some very irritated help from the European Central Bank) will have to recapitalise the entire banking sector. All this will have to be done during a global financial crisis. It's going to be comically awful, like having to change your tyre in the middle of a demolition derby.
I lived through the Irish property boom of the past decade with ever-mounting incredulity. It really was the most extraordinary case of mass delusion since everybody drank Kool-Aid in Jonestown. And if you want cast-iron evidence that I'm not pretending to be wise after the fact, here I am on Irish television, in May of 2007, saying exactly that, to the stony silence of the studio audience, all of whom had just bought an investment property the day before, and would be buying another one the day after.
(Oh yeah. banks and hedge funds and other financial institutions will also be imploding across America and around the world after this, but I'm so bored with the USA, I thought I'd talk about Ireland for a change... Ah heck, one more US prediction: good, old-fashioned, retro, Depression-era bank runs in America, starting tomorrow.)
Reader Comments (11)
oh great.
That's just we need right now (!)
You are right: this situation is very comical.
http://www.irishtimes.com/newspaper/breaking/2008/0930/breaking17.htm
Yes, Neassa, I'm not quite sure how a government as small as Ireland's can "guarantee" a debt as big as the Irish banking system's. The debt they're guaranteeing is what, three times our Gross National Product? And, oooh, roughly ten times our national debt? (Bear in mind, over the past decade Irish banks funded far more buildings than you could fit into Ireland. There's dodgy flats all over the UK built with money supplied by Irish banks (who in turn borrowed that money short-term, in international markets which are now frozen.)
Iceland has the same problem (an open economy, with a banking sector that expanded outside the national border, and grew aggressively by borrowing short-term, rather than by building up its depositor base.) And they just had to nationalise their third biggest bank, Glitnir.
It's all very interesting.
The government has now given a two year unlimited guarantee on deposits/debts to six banks... but they will ALSO be helping the subsidiaries of these banks (??) Please explain where these begin and end? I think most people (and me) are confused as to 'who is really who' in the bank world.
What about the subsidiaries of the subsidiaries? I'm sure the Russian Doll of global banking goes farther than the ones mentioned in the news/press releases.
Economics.. so exciting!
Also, I'd love to know the terms and conditions (charge rates) that are apparently going to protect the taxpayer? Is it really such a good idea to use the taxpayer's money when we already have problems with funding Health services, Education etc?
I don't own property myself (and never once considered it) but I could see this property insanity reaching as far as my Donegal home place! ('eh... Celtic what?')
The fact that there's no detail on how it's all going to be paid for would lead me to think it's not a soberly-judged contingency plan dusted off for the occasion, but more something thought up in desperation overnight.
http://imomus.livejournal.com/404056.html
Hope you don't mind being compared to Oscar Wilde and a Shakespearean fool!
That is a terrific piece, Momus. Elegantly states some timely truths. I'm honoured to be included.
Check it out, pop kids. This is how the end of the world looks from Berlin. Nicht so schlimm. (Not so bad.)
http://imomus.livejournal.com/404056.html
Here's the Irish Times this evening, talking about the Irish Government's meeting in the early hours of Tuesday morning:.
"The option of allowing one particular bank to fail and then moving to nationalise it was seriously considered, but it was decided that legislation to protect the entire banking system would had a better prospect of achieving long-term stability."
I'm pretty damn sure the bank was... well, I'm saying nothing. No point making things worse for them. (But, in one of those crazy coincidences no doubt, I got a huge number of hits today from people who'd googled: anglo irish bank collapse.)
Incidentally, Anglo Irish shares soared 67% today after the announcement of the Irish Government scheme... Ah this is turning into a blog post, not a comment, hang on I'll just convert it into a post and slap it up...
Now wouldn't that be fun.....
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