“If a company can not pay its interest..”

One of Mick’s picks for his Blog Rush ealier today, Simon at Irish Election, noted that

THE IRISH Financial Services Regulatory Authority has instructed accountants PricewaterhouseCoopers (PwC) to assess the extent to which the banks are delaying the collection of interest payments on loans to builders and property developers.

If banks are not collecting interest on loans it is pretty clear that with the current state of finance they consider that there is no money to collect. If a company can not pay its interest it will probably go bust dumping a massive bad debt on to the banks balance sheet (and the tax payers laps).

Meanwhile, property development company Taggart Holdings have gone into administration. And a familiar name appears in the report..

PricewaterhouseCoopers have been appointed as the administration of the Belfast-based firm at the request of Ulster Bank and the Bank of Ireland.

I did suggest we might need an administrative genius..

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  • Modernist

    I honestly cannot understand how the hell the directors of the banks failed to see this time-bomb coming. Anyone who was paying any attention to the global economy even 3yrs ago could have seen this coming. I remember a documetry on the bbc or chanel 4 investigating the sub-prime lending around that time. The writing was on the wall. Were these directors just plain incompetent or did they know what they were doing and just expect the man on the street to take the hit in the end. I also remember an interview with a smug head of Anglo Irish Bank a while back who was going on about how his company would be sound as it was still giving out massive loans to the business sector in the middle of an economic slowdown. How the hell did none of the political leaders across the globe not see this one coming and step in in-time. Were they all that incompetent? And whats next for the UK economy into the future. With all the regulation that will be placed on the financial systems globally in the future theres going to be a lot less dough flowing about the place

  • LJS

    God(s) know what is coming;
    wise men see what is to come;
    fools see what has came.

    Or if you prefer

    A banker is someone who will lend you an umbrella on a sunny day but want it back on a rainy one.

    As Keynes noted (Essays in Persuasion) bankers will always prefer to fail in a “conventional way” by following the
    decisions of others, rather than risking being unconventionally right.

  • waffler

    Worst hit by the downfall of Taggart Holdings will be all those subcontractors that they OWNED for a long time.
    Who believes the Taggart brothers will lose much if anything (not a chance)
    The whole episode is clearly down to white collar greed at the expense of the wee man.

  • Alan

    The question has to be – how do we stop this happening again twenty or thirty years down the road when the banking world has gone all cynical again.

    I know many of us will be pushing up daisies by then, but the question has to be asked.

  • aquifer

    There can be some answers.

    Have independent auditors appointed by government, rather than being paid by the bankers to inflate paper profits to justify big bonuses.

    Auction banking licenses. After all, it is now clear than governments and taxpayers insure bankers, they should at least be paying us a premium.

  • Greenflag

    Modernist ,

    ‘I honestly cannot understand how the hell the directors of the banks failed to see this time-bomb coming. Anyone who was paying any attention to the global economy even 3yrs ago could have seen this coming. ‘

    Using the word honestly in your quote above seems to indicate an expectation on your part that the ‘directors of banks ‘ and other financial institutions are possessed of such impeccable ethical standards that they would never be consumed by greed .

    In the ‘theoretical ‘ economy that derived from the mathematical formulae of the ‘free market’ everything would have it’s true price decided by perfect competition in a perfect free labour market and in a perfect flow of information between all consumers in the market place whether they are buying a dog , a dormer bungalow or a derivative .

    In the ‘real ‘ world the axioms postulated by the fundamentalist ‘free marketeers’ are messed up in their application by the inconvenient presence of human beings who are notoriously prone to human emotions such as fear , greed , avarice , prejudice , bias , wishful thinking and some even with a desire to become extremely wealthy with as little effort as is humanly possibly .

    The apex of this pyramid of greed was occupied by yes those self same ‘bankers , mortgage brokers, investment bankers , hedge fund and derivative and credit swop salesmen etc , who were making too much money to pay much attention to anything other than how much their personal ‘pile of dosh ‘ was growing .

    Such ‘financial ‘ genii such as former USA Fed Reserve Chairman and his successor Mr Paulson among others were assuring all and sundry until quite recently that not only was the garden rosy but that the ‘market ‘ would make any ‘corrections ‘ needed to keep the economy going .

    Now we know that left to itself the market would have entirely collapsed and left even more millions destitute . Welcome to a world of 60 million pissed off Americans armed to the teeth surrounded by a destroyed economy and seeing their entire savings made worthless and their home equity turned to mush . Anybody remember what became of the Weimar Republic ? The world economy can put up with an emisserated Iceland but not an emisserated USA, or EU .

    It’s not over yet . I suspect ‘confidence ‘ will only truly be restored to the world economic situation when the USA election is over and the present administration is replaced by the Democrats . It will also take a new world financial order which will reduce the influence of the USA and increase that of the EU , China , Brazil , Russia , India , Japan , S Korea among others .

    Alan ,

    The question has to be – how do we stop this happening again twenty or thirty years down the road when the banking world has gone all cynical again.

    Good question . The one thing you don’t do is to appoint ‘regulators ‘ who are politically and economically vested in ‘deregulation ‘ from the get go .

    Who polices the police? The American Congress & Senate took it’s eye off the ball in the early 1980’s and since then it’s been a gadarene swine rush downhill on the highway to nowhere, without any roadside rails but with a cliff edge always around the next bend . Alongside this was of course the technological and internet revolution which helped to expedite the transfers of vast sums of money around the world from Singapore to New York to London to Dubai etc . Who said Leeson ? Remember that French chap ? Savings & Loans /Keating five etc etc etc .

    There will of course have to be better regulation . However they have to guard against undue new regulation clogging up the economy and slowing down economic revival .

    I could suggest bringing in the ‘death penalty ‘ for ‘financial crimes ‘ of a high order but this while presently perhaps popular might be considered ‘extreme’ by those atop the political world . A bit too close for comfort for some perhaps . The ‘new’ rich Chinese Communist Capitalists might find it awkward and as our Biffo is scurrying away to China to escape the flack he might try to find out while he’s there -how come the ‘free market ‘ seems to be very compatible with a communist one party state ?

    This is a no no according to Francis Fukuyama the American scenario maker who ‘predicted ‘ the end of history based on the victory of the West via the economic mastery of the Chicago School of Economics ?

  • LJS

    http://en.wikipedia.org/wiki/Stanley_O'Neal

    was warned that there were problems in various sub prime holdings.
    Forgetting his duties to shareholder he sacked that employee and one year (approx) later he left with a large severance package after refusing to do his duty.

    Andrew Lahde thanked ‘stupid’ traders for making him rich.

    We have been here before with the dot com bubble bursting.

  • LJS

    Expletive deleted. The ‘ causes no problems on the preview page but in the real world it does not work.

    Now what does that remind me of?

    (PS The page at 21:05, 16 October 2008 is the best version)