Irish and American banks took huge risks with their clients money. For slightly different reasons they are all now pretty much insolvent, and require external agencies to make good their huge losses. Unfortunately, those ‘external agencies’ look like being me and you! In effect Irish taxpayers, many already losers of the great Irish property bubble boom and bust, are now being asked to purchase the bad assets owned by Irish banks at current market values – which are well above anything resembling fair value.
David McWilliams argues that the government’s current plan is a bad deal for taxpayers, and asks no cash for trash please? His alternative involves asking for European financial support in order to run a bad asset management company. The banks would pay 6bn for this service, which would dispose of their dodgy assets over time. Similarly, Karl Whelan put forward arguments for nationalisation instead of the bad bank solution. While the maths of Whelan’s solution are clear in his article (although he assumes much smaller bad debts than McWilliams), it’s not clear at all exactly who picks up the reminder of the tab in David McWilliams solution (God bless the ECB?).
Stateside, nobel prize winner, Joseph Stiglitz argues against the ersatz capitalism, of privatizing the gains and socializing the losses in the New York Times. He regards Obama’s / Geithner’s plan as a win-win-lose solution: the banks win, investors win and taxpayers lose.
One thing is for sure, it is deeply unfair that ordinary taxpayers have to pay twice for the mistakes of the incompetent bankers who made out like bandits at their expense during the boom.
No bio, some books worth reading – The Rational Optimist: How Prosperity Evolves – Matt Ridley .
Crisis Economics: A Crash Course in the Future of Finance -Nouriel Roubini, Stephen Mihm