Friday, January 16, 2009

Anglo Irish Bankrupt

Accountability for the use of public resources is the first victim of a financial crisis. Willem Buiter
The Government has made me a part owner of Anglo Irish Bank. Gee thanks, just what I wanted for Christmas. The usual excuse of the potential for 'systemic risk' have been trotted out. As usual there is zero transparency about how much failure we are talking about. The quote from Buiter is more than apt in the circumstances.

How much am I now liable for (along with other citizen-taxpayers)? Anglo are reported as having liabilities in the order of some €100 billion. If 20% of that goes bad (the typical experience of US property busts on banks according to Morgan Kelly) then we're looking at writing off some €20 billion. That's equivalent to the Government's budget deficit this year. Kelly points out that 20% is the 'optimistic' scenario for Ireland.

It is extraordinary that a democratically elected Government is taking on these liabilities - which will have no benefits and only costs to the taxpayer - without any detailed explanation to its citizens of the origins, nature and scale of the risks involved. I guess the FT is right: this is how things fall apart.

2 comments:

  1. 20 years ago there was a crisis of reduced trust in banks in Israel. The government nationalised all the major banks to calm the fears and stabilize the economy. Some years later the government sold the banks with a huge profit. It seems to me that the problems of Anglo Irish are mainly weakened prestige and big involvement in the Irish inner economy. In this case it may be the best interest of Ireland to save the bank.

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  2. Nationalisation in itself does not increase our exposure. The deposit guarantee already meant that if Anglo's assets were found to be worth nothing, we would have to pay bank the €100 billion or so.

    But of course the assets are not worth nothing. Morgan Kelly now says, using what is litle better than "a rule of thumb" and without detailed knowledge of the actual Anglo position, that the assets will be worth €20 billion or so less than the liabilities.

    Interesting, because not so long ago, he was quoting the same figure as the shortfall for the entire Irish banking system.

    He may still be proven right, but I see no reason to assume that he will.

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