FT.com / Europe - Irish banks face shortfall of €32bn.
The FT notes:
Ireland’s banks face a capital shortfall of up to €32bn, the country’s regulator and finance ministry said on Tuesday, with the Irish government liable for up to three-quarters of that figure.
The black hole, equivalent to about 20 per cent of gross domestic product, is far bigger than expected.
The peoiple of Ireland are discovering, as have the people of Iceland before them, the reality of limited liability. The upside belongs to shareholders. The down side is public.
There is no chance of building the new economy that is needed unless the asymmetry of this situation is reformed and yet almost no thinking has been done on the issue.
It's one I want to work on because quite clearly this cannot persist.
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It’s the reality of surrendering control of your currency.
What upside for shareholders? Their total investment should be wiped out!
@Fred Fry
That’s called limited liability, Fred. The upside is they only lose their investment. They are not responsible for the bank’s liabilities. Furthermore, they will probably have had a return on their investment during the good times, unless their timing was particularly bad, of course!
But there will be other losers if the state does not pick up the tab. Anyone who has lent money to or deposited money in the bank. Theoretically, these people will already have factored in this risk. Whether this works in practice is another matter.
@vimothy
What does it have to do with the currency? Countries had to bail-out their financial systems irrespective of their belonging to a currency union or not. the US had to bail out their banks, even Switzerland had to underwrite UBS (ffs U-B-S!).
The problems were caused by poor regulatory oversight, idiotic global monetary signals and a series of management failures, not by currency.
@Ted G
Ted
Extraordinary
Banks failure was the government’s fault, in the main
In which case bankers definitely do not deserve their pay
Richard
@Richard Murphy
I do not understand your post.
We seem to agree that banks’ failures were the result of poor government policies: insufficient regulation and monetary policy mistakes.
So why bring bankers’ compensation in the discussion if governments and their agencies were to blame?
@Ted G
Sorry – my irony did not come out well, if at all
Of course I don’t agree with you
Your claiming is barking mad
Banks failed because of bank’s irresponsibility and excessive influence on regulation
What I was saying was that if your wholly false argument held true then bankers are so dumb they couldn’t possibly justify their rewards
In may case they’re so dangerous we can’t justify allowing them to do what they do
In either case reform is essential
@Richard Murphy
So it is the regulators that failed to resist the banks and to properly regulate them. We agree on that.
@Ted G
No we don’t – you blame the regulator as if they were separate from the bankers
I say bankers took over the regulator
@Richard Murphy
So the real turkeys were these original regulators who allowed themselves to be taken over.
Names?
FSA
International Accountinbg Standards Board
SEC
The Fed
etc
etc
etc
Here is something puzzling. Banks as limited companies enjoy the legal privilege of limited liability and yet are allowed to run up unlimited debts. This does not make sense. Privileges granted by the wider society must be earned through behaving responsibly. So in return, we can insist on a cap on banking liabilities of no more than 3% of GDP (as suggested by Simon Johnson), no bonuses, no ‘offshore’ tax avoidance, and no nonsense such as ‘trading’, (what FDR called ‘speculation with other people’s money’). If they want to speculate then no one is stopping them, they would just lose limited liability and take the consequences.
I can’t understand why banks are allowed to create credit for free. Why doesn’t the govt force them to buy it from the BoE, thus having control of the supply and generating useful revenue at the same time?