September 17, 2008

Banks need to grow up and stop playing chicken

Posted in Banks · 83 comments ·
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Closed BankWe are now in a bad-debt cycle, where a credit crunch is exposing reckless loans that will never be paid back. Make no mistake, millions of euros in loans will never be honoured.

An “Irish” bank has already gone under this week. Merrill Lynch, founded by two Irish Americans — Charles Merrill and Ed Lynch in 1915 — was known as the “Irish Bank” on Wall Street. On Sunday, Merrill Lynch — the bank that had such a network of brokers that when it started selling or buying an asset, it was called the “thundering herd” — ceased to exist. The bank was bought by Bank of America to avoid possible bankruptcy.

Irish Americans have long been associated with Wall Street and financial speculation. In the 1920s, when Merrill Lynch began to prosper, outsiders like the Irish and the Jews, who were not accepted by the WASP establishment, constituted leading cliques of speculators. Irish operators like Charles Mitchell, Mike Meehan, Bernard Smith and, of course, Joe Kennedy, cornered many markets and made fortunes. These men came from nothing and they conformed to the phrase that “he who values not his neck, because he is conscious it is worth nothing, may take the boldest leap”.

Maybe our collective recklessness in the past few years can be put down to something similar. We got access to cheap credit for the first time ever and we went for it. Many companies who have set up here have noted this weakness for speculation as a positive point. When asked, many managers of foreign companies suggest that the Irish willingness to take a risk and to gamble marks us out from some of our more prudent neighbours.

However, like some of the great Irish Wall Street speculators, when assets fall in value, the game changes dramatically. Tragically, Charles Mitchell ended up in jail for tax evasion in 1934, while Mike Meehan was committed to a lunatic asylum in 1936.

While these men fell spectacularly, everywhere in America people’s circumstances changed. Most significantly, in the 1930s, banks failed and failed stunningly. And this brings us to the question on everyone’s lips: what will happen here and what can be done to prevent an implosion of the Irish banking system?

The first myth to dispense with is the idea that Ireland is in some way different. When house prices were going through the roof, practically every economist in Ireland bought (at least publicly) into the canard that Ireland was different. Yarns were spun wholesale, such as we had better population growth, less debt, more immigrants, less houses.

We now know that Ireland is not different. We are the same as every other country. In recent days I have heard commentators suggest that Ireland does not have a subprime crisis and, therefore, have less severe financial problems. This is clearly nonsense.

If you believe lending people money to buy starter homes valued at 14 times the average income is not inviting a financial calamity, then you should stop reading now. If, on the other hand, you believe that we are facing a real crisis, then we must map out what form that crisis will take and how it can be minimised?

We are now in a bad-debt cycle, where a credit crunch is exposing reckless loans that will never be paid back. Make no mistake, millions of euros in loans will never be honoured.

So will an Irish bank go under? If Lehman Brothers can go bust and Merrill Lynch can be swallowed up, there is little doubt this can happen here.

Yesterday, Irish banks lost another huge chunk of their value on stock markets. This is likely to continue over the course of the next few days because the financial markets do not believe the gamble that Hank Paulson, the US treasury secretary, took over Lehman Bros this weekend.

This market reaction is important to appreciate. Mr Paulson thought that by letting Lehman Bros go to the wall he could draw a line in the sand. He gambled that the financial markets would react by thinking: “ok, Lehman was very badly run but that was one bank and now that the authorities are not going to bail banks out, the financial community will have to sort its own act out”.

Had this gamble worked, stock markets would have rallied as the market distinguished between “good” and “bad” banks. Instead, they have all tanked and they are likely to fall yet further. Indeed, next weekend could easily see another huge failure because the markets are now targeting vulnerable giants by the hour.

Residential Mortgage Debt

With that in mind, let’s come back home to the Irish banks. Our banks are no different from US banks. The only issue is one of degree. Very soon, Ireland will be faced with the same crisis as Wall Street. The reason is simple; we are a superannuated version of America. If you look at the numbers, our situation is actually worse.

Check out the chart. It reveals that residential mortgages in Ireland have risen by 522pc in nine years. In the US, the figure is only a 102pc increase, meaning we have got into debt five times faster that the US — where the situation is supposed to be diabolically unique!

Put simply, we are looking into the precipice. However, there is a solution. The first should be a shotgun marriage between two of our banks. For example (and in no particular order as this could be any of them), Bank of Ireland and AIB should be urged to take over one of the smaller banks. The objective of this is the same as the Merrill Lynch takeover — it is to shore up the balance sheet of the weaker banks before everything unravels. This marriage should be forced by the Central Bank to save the system.

At the same time, the Central Bank needs to go around Europe with a “Bank for Sale” sign and entice in a big player to take over one of our bigger banks if necessary.

In addition, and as part of a merger deal, the Central Bank should stop acting macho and provide as much credit to the banking system as it needs. This means that banks have to make public just how much money they need. At the moment, the banks are playing chicken with the market, pretending that they don’t need to go the Central Bank for money.

If we don’t see these moves quickly, there will be serious trouble. It is highly likely that a bank will go bust and the entire financial system could come crashing down. Let’s not wait for this. Let’s not repeat the mistakes of our Irish American cousins. We can act now and do it decisively.

 


  1. paul

    Not only did the Central Bank here fail in their duty to regulate our banks during the boom, by stopping them from the excesses of 100% mortgages and demanding tighter lending criteria, now, as we tip into recession, what are B.Cowen and Co up to? Why planning to give their old chums in the construction industry yet another dig out, of course. Under the shameful mask of “lending a hand to poor unfortunate first-time buyers”, they are about to meddle in the market again – on behalf of the builders – allowing them to live in denial of the market fall and push out further the inevitable day when they must face reality and DROP their inflated prices. This simply prolongs the misery for all. Unbelievable. We’ve learnt nothing here.

    Sure, Euro membership spoiled us with David’s truckloads of german cash to fuel the boom. But now, at least it’s cushioning us from disaster. Without the Euro, we’d have a worthless currency in our pockets by now as the hedge funds would have oversold the punt for profit and driven this wee island to ruin.

    Paul

  2. MK

    Hi David,

    The financial events that we are in the midst of are certainly food for thought for professional economists and amateur commentators. You have no shortage of material ideas to work on. Things are moving very quickly, which may be a good thing when we get a chance to look back at it in years to come.

    > Merrill Lynch ceased to exist. The bank was bought by Bank of America to avoid possible bankruptcy.

    It didnt cease to exist in business terms, it has been bought/merged/acquired by BOA, and a deal done in parallel to when Lehman was being hung out to dry. My guess is that the situation at Merrill was less bad, that BOA must be counter-party to many deals with Merrill, BOA has problems of its own and may be staying its own execution. There are also aspects of Merrill which are making money such as its brokerage and BOA,a recent addition to the Dow components, got it for a knockdown price. But it remains to be seen what happens now with the new bigger BOA.

    > stock markets would have rallied as the market distinguished between “good” and “bad” banks.

    First lets put into context the size of the Lehman mess. They were 620 billion in debt. This is from a business with about 20billion in revenues. They were up to 30 times their ‘salary’ in debt. All was going well in 2005, 2006 2007, record revenes and profits as their assests grew in value. Their debt greew and grew as well. It all works in a bubble. They were playing the commercial property game. But like everybody who plays in a ponzi scheme and is still there when the bubble bursts, it comes crashing down. 620 billion, thats 3-4 times Ireland GDP/GNP or thereabouts. Most of their assest are illiquid. As they are liquidated, losses to counter-parties will become crystallized and losses will be put onto other parties. Their problems had nothing to do with sub-prime. Nothing to do with a credit crunch. Its all about a property bubble.

    But some banks did gain in value, JPMorganChase was one. The probl;em is its impossible to tell which banks are good and which are bad, so for now, treat them all as if they are potentially bad. Thats why all bank values are depressed, even the good ones. Who knows, maybe BOI and AIB will be good ones. Share prices at this point in time reflect more sentiment than true long-term valuation, as that is unknown.

    > The first myth to dispense with is the idea that Ireland is in some way different.
    > So will an Irish bank go under?
    > Our banks are no different from US banks. The only issue is one of degree.

    Ireland is not stucturally different, I agree. In theory an Irish bank could of course go under. But it depends. The banks here are slightly different and only looking at the details of the balance sheet could one determine what are the debts, what are the assets, toxic debts, etc. The banks themselves may not know. Only when the cashflow starts running out do people really have to get into the nitty gritty amd mark values ‘down’ to market, real firesale values, not accountant made up ones! Lehman was slow at that, but seemingly may have been better than others. Time will tell.

    > in Ireland have risen by 522pc in nine years. In the US, the figure is only a 102pc increase

    But percentage gains cant tell us the complete story as they are likely to have been starting on different bases. The best figures to use for comparison are ‘times average salary’. In the US, property has been historically cheap due to the amount of land (flat land at that) they have and their loose planning restrictions.

    > The first should be a shotgun marriage between two of our banks.

    This is not a good idea. No way would a bank merge with another that has more toxicity than itself. It has no need to. I think its better if the government guarantees all deposits (say up to 250k) or something, that instills some confidence and prevents runs or banks losing what precious assets they have. The best thing the government can do is to boost our economy as quickly as it can. But thats not easy.

    > and provide as much credit to the banking system as it needs.

    I’m not so sure about that. We have problems because there was too much credit given out, so giving out even more credit is a bit like the ‘hair of a dog’ drink for the alco in the morning. It may make him feel better temporarily, but its just putting off the pain until later.

    The US gave AIG 85 billion loan but for 80% of its business, a majority nationalisation. If we do give credit to a failing bank, we (government) should get a share of it.

    > At the moment, the banks are playing chicken with the market, pretending that they don’t need to go the Central Bank for money.

    There may be a lot of sticking of heads in the sand, ostrich like. I know that when I worked at a bank once, that the level of hubris coming out from management was shocking. They never told it like it was and lied through their teeth. All the time, I’m afraid. Its endemic. So perhaps like the person re-arranging the deckchairs on the Titanic and not believeing it is going down until their faces hit the water.

    But to be fair to the banks here, they have been historically conservative, safe, and have made most of their money locally (ireland and UK). Thats AIB and BOI. What happens with M&T I dont know. Who knows? Barings Bank was brought down by one trader in a far off office so anything is possible. I would be more worried by the more adventurous Anglo Irish, who have made good on the back of the property boom in Ireland and the UK. We will know more once developers start going bust in droves, and loans become bad/unpayable/’toxic’. There is a trickle already. In Spain a very big one went, but BBVA and BSCH were big enough to swallow any damage.

    > It is highly likely that a bank will go bust and the entire financial system could come crashing down.

    Whilst a bank crash here would be ‘uncomfortable’, it wouldnt be the end of our financial system. At least not yet.

    MK

  3. The central bank spent the last 10 years telling us all to stop spending and telling the banks not to give out 100% mortgages and all the time every said they were just cranky because they no longer had any power. Now that everyone has ignored the central bank and we are all in trouble we are moaning at them for not being tough enough and not doing enough to save us from ourselves. The bigwigs on the top floor of the central bank are looking down on Dublin now with a bitter taste in their mouths and thinking “I told you so, and to hell with you if you think we are getting ourselves worked up on your behalf”. Let the Irish Banks go bust and let the economy off with them – might teach us all a lesson about greed.

  4. Lorcan Roche Kelly

    Mk and I are on the same page on this one.

    > The first should be a shotgun marriage between two of our banks.

    I don’t think this is a good idea, for two reasons. Firstly,as MK says, why risk two banks when one is in trouble. After all, wasn’t this global credit crisis started by banks spreading their risks into the market? We need the law of the jungle to apply here. The banks that survive this crisis (and it could be all, or none, of the domestic banks) will be leaner and hopefully smarter after their time in the fire. Secondly,too much M&A in the Irish market would lead a near monopoly situation. Bank failures are painful in the short to medium term, but lack of competition would put us at a long-term disadvantage.

    The ‘Bank for Sale’ sign has been up for a while. Now it should be a ‘Fire sale’ sign, soon to be a ‘Closing Down Sale’ sign. Would it not be easier to encourage foreign banks to enter the Irish market, as HBOS (or is it now LoydsTSB?) have done. We need banking services. While it could be argued that it’s preferable that they are provided by Irish banks, it is critical that they are provided.

    > and provide as much credit to the banking system as it needs.

    The banks need credit. But shouldn’t there be a caveat attached to any emergency funds? In my opinion providing this credit amounts to a ‘soft’ bailout of the banks. If we are going to do this the central bank should look for something back. Maybe a ‘soft’ version of the US Freddie and Fannie bailout. The central bank could get a stake in the banks, or make itself a ‘preferred creditor’. Charging punitive interest rates would only exacerbate the situation.

    > It is highly likely that a bank will go bust and the entire financial system could come crashing down.

    It isn’t ‘highly’ likely, just more likely. As for a bank failure bringing down the entire financial system? If you are talking about an Irish bank failure, I’m sorry but there is no Irish bank close to being that big. A failure in a major international bank is even less likely, but still wouldn’t mean the end of the financial system. The system would change, and the change would be painful, but it will continue to exist as long as we continue to use money.

    Unwinding the current mess is going to be a long process. Asset prices are going through a post bubble correction, which is forcing a lot of de-leveraging. As David rightly points out, the banks will have to come clean about the costs of these processes. Only once this is done is it prudent to start recapitalising the financial system. Doing it now will only encourage bankers to skip the ‘coming clean’ part of the process.

    If central banks keep writing cheques in these conditions we risk much more than a bank failure. We risk our national balance sheet. A bank going bankrupt is bad, but don’t risk Ireland’s solvency to save one. Take a look at the US balance sheet to see what I mean.

  5. Philip

    Let’s assume the financial system survives – which I think (probably naively) it will because there is an all too heightened awareness between all key powers that the alternative is simply not tenable – it will be a lot smaller than it is now. I think it was Soros who recently gave an analysis that the whole financial sector consumed far too much of the capital and intellectual resources for perhaps the last 25 years and we may see a move to a more contained and regulated systems similar to that of the late 70s.

    The good side to this is that we might find much of intellectual capability starting to direct itself to genuine wealth creation. It is remarkable to see how real tech development in Aerospace practically came to a standstill since the early 80s. NASA’s space programme came to a virtual standstill. Big infrastructure/ big science stopped in favour of low capital/ low risk R&D. The cheap credit/ new financial system facilitated a flip mentality for get rich quick schemes so much associated with the internet and other (let’s face it) intellectually light but dazzling looking technologies and has damaged technological progress. Many forget that our current “WOW” tech originated from NASA, CERN, Darpa etc. Even the jets take a few hours longer to cross the atlantic than 20 yrs ago! Fuel savings are a looser / accountancy solution – a sign of impatience to meet flip minded stock holder needs in favour of finding a real solution. I felt sorry for the french kid that had joined Leeman on the day it went bust. Maybe a bright guy like that and others will be reconsidering their options for a career in the hard technologies. I am optimistic.

    On the negative side, the UK has a hollowed out economy with a huge financial centre. Latter looks is going to shrink…back to 80s or earlier levels and that means a significant portion of our trade could be impacted.

    Interestingly, this may afftect Ireland’s educational system suffering of late from a lack of interest in the sciences etc. Maybe that may change. This crisis could also be the seed for an attitude change that may make us think more in terms of good value, good cummunity and honesty. I am positive about this because a) higher education out there, b) more heterogenous mix of poeple with blowins – meaning less ingrained local attitudes c) There is no where to run…cannot emmigrate when it’s rubbish conditions elsewhere as well. This is the time to get infrastructure here operational – vene if we have to print our own money to do it.

  6. Garry

    agree with Lorcan. Rurai, the central bank bottled it. They weren’t the only ones but lets not go there, theres nothing to be gained right now from a blame game or self flagellation.

    We are where we are; the key now is to ruthlessly prioritize where we want Ireland to be when things settle. I would submit healthy public finances should be top of the list followed by ownership of some valuable financial institutions should we have to risk any taxpayers money.

    We are in a very dangerous time, swimming with sharks with blood in the water. We can end up being savaged and nursing our wounds for years to come, or the country can emerge from this in reasonable shape, it is all in the hands of hurley/cowen.

    At least the Fed are trying to get something from their bailouts. By effectively killing one (Lehman) and by eating 80% of another (AIG) they are showing some teeth, which is whats needed when dealing with sharks!

    Here were just getting PR leaks of schemes to “restore confidence in the housing market”, ironically the government brought the budget forward to address a problem thats out of date already. The woolly headed bullshit thats being proposed here like the taxpayer getting into the sub prime loans business makes me fear for our national solvency. Wake up John Hurley/Brian Cowen, time to up your game!

  7. Paul

    BOI hovering over 4 euro, it is still tempting to get back in there now. But will they tank further over the comings months. So many rumours, so little time to take it all in, so exciting and depressing at the same time.

  8. Why can’t the elitists and liberals running our country get it into our head, the simple solution to our economic woes is to LEAVE THE EUROPEAN UNION and regain control of our borders, and (politely) returning people to Poland etc etc- the European Union, including the Freedom of movement, in conjuncture with German banks is destroying Ireland. We are different from the Europeans, and we can never join or integrate with Europe. The only reason people liked it was because gobshites in countries like Germany we’re giving money out for nothing, its all dried up now so why not leave. Ireland is a beutiful ancient country, lets stop the evil Europeans destroying it, as well as flushing our small vunerable economy and hard won prosperity down the toilet. Irish solution to an Irish problem- those Europeans will just never get it.

  9. Why can’t the elitists and liberals running our country get it into our head, the simple solution to our economic woes is to LEAVE THE EUROPEAN UNION and regain control of our borders, and (politely) returning people to Poland etc etc- the European Union, including the Freedom of movement, in conjuncture with German banks is destroying Ireland. We are different from the Europeans, and we can never join or integrate with Europe. The only reason people liked it was because gobshites in countries like Germany we’re giving money out for nothing, its all dried up now so why not leave. Ireland is a beutiful ancient country, lets stop the evil Europeans destroying it, as well as flushing our small vunerable economy and hard won prosperity down the toilet. Irish solution to an Irish problem- those Europeans will just never get it.

  10. *Why can’t the elitists and liberals running our country get it into our head, the simple solution to our economic woes is to LEAVE THE EUROPEAN UNION*

    Want to to take bets how much the neo-punt would get shorted in the first week? Plus, we get most of our FDI because we’re an English-speaking country in the Eurozone. We’re going to need Europe’s help to get ourselves out of this mess so let’s not be so quick to send Trichet “jingle mail”.

    Money was being handed out for nothing in Germany too and you didn’t see them go nuts. Stop blaming Europe. This is a mess of our own making. Besides, I want the Poles to stay. We’re going to need something nice to look at in the years to come.

  11. John Q. Public

    David, I think a lot of people are confused between the powers of the Central European Bank and our own Central Bank in Dame street. Does anybody out there know if the one in Dame street can still act as ‘lender of last resort’, ‘banker’s bank’ and does it implement any monetary policies at all or does the ECB hold all the strings?
    Secondly isn’t it true that our banks owe a lot of money to the Arabs? This time last year in your article you said ‘Over four euros in every 10 lent to you and me is now borrowed directly by the Irish banks from foreigners.’ It’s worrying to think that we will have to answer to the Arabs should one of our banks collapse.

  12. Gaius, even if we introduce our old currency (maybe even shillings, haypences- also abolished to please the bueraucrats in Brussels back in 1973), we can still peg it to sterling. Ok so we don’t have full control of it, but we’ll still have our currency. Anyways we don’t need the European Union because we are an island between 100-200 miles from continental Europe, and are therefore not tied to rest of them geographically, thank god for the seas that seperate us, Europe has been nothing but a trouble spot for centuries. Actually i’m beginning to miss the old pennys and pound punts- the euro is the most pathetic, souless, soviet style, boring currency in human history, I mean come on how dull can you get, a continent using one single currency, and all it has is some stupid acquduct and some arch- and all we get is a stupid harp at the back. For god sake how can you be a country when you don’t even have your currency. Even the nations of the British Empire had their own bloody currency- the only person to ever force a single currency on Europe was none other than Julius Caesar, and probably Napolean and Hitler.

  13. MikeinGlasgow

    David:
    Do you know that in the UK the ordinary consumer can go to a site like http://www.ourproperty.co.uk and find out what the house next door really sold for (direct from the land registry data bank), free of charge. As far as I know this kind of service is not avalable in Ireland right now. So the Irish consumer is expected to buy blind. It would be interesting to consider what effect such a service would have on the stalemate the irish property market is currently experiencing. This would expose where EA’s are secretly knocking 50K off the price to shift it in the closing rounds of negotiation and highlight the true market value as it stands today. Indeed it begs the question why such a service does not exist in a country obsessed with property. I suspect foul-play.

    • IrishinAmsterdam

      This [getting an online overview of all actual paid prices for properties] is also possible in the Netherlands – costs EUR1,50 a postcode – which in Amsterdam is about 10 street numbers and shows you all transactions for previous 4-5 years.
      Can’t see how you can call anything “a market” if the price setting is not transparent

      On David’s graph you see that NL has a higher absolute per capita mortgage debt than Ireland. This may have something to do with the fact that there are ~16 million people looking for housing in a country the size of Munster, that planning law are restrictive and most importantly that interest on mortgage is tax deductible.

  14. Longlivetherepublics

    What if the stupid banks do go under?. Can the state put them through bankruptcy at least in the short term to prevent chaos and runs, and allow them to still provide the banking functions communities need, because at the end of the day this is all that is required, banking functions that is. Let the old banking institutions go but preserve the services they provide, depositors accounts would be frozen but at least they would be the first in line to get their money back, the Arabs would be last in the line. If you are a depositor you would be allowed to take out a zero interest loan against your deposit as collateral if you really needed the money, and new deposits would of course be instantly accessible. Because no runs would be permitted on the bank, previous loans could be renegotiated to a level more in line with real values which would reduce the likelyhood of loan repayment defaults and thus maintain the flow of capital into the banks which could be lent out again in the communities, thus restarting the credit engine.

    So we basically exported 40% of our housing stock to the Arabs at over inflated prices, well we can just buy it back at pennies on the Euro. Whats the big deal.

    I was reading somewhere that there is approximately E 100 billion in accounts throughout the country, which is in
    dire need of an effective investment vechile. I would propose a bond issue by the government to jump start and fast track the NDP., and as part of the NDP I would advocate a tidal dam generation scheme,reservoir/hydroelectric,
    Nuclear and the nationalization of Corrib. I mentioned this before but got mocked at by Malcome McClure, but all i’m espousing here are the principles of old fashioned grounded economics. You can only reap what you sow, and our fields have been lying fallow for to long. For example just an expansion of our reservoir/hydroelectric capability
    would simultaneously contribute to solving the problems of our energy requirements and water management issues.

  15. William Winters

    To protect themselves from possible bankruptcy I think the time is right for a merger between Bank of Ireland and AIB. As you said David, If Merrill Lynch can go under, so can our banks. Charlie McCreevy was labelled a mad man for suggesting this merger several years ago for different reasons but I believe there is a lot of merit in his idea.
    Create a strong Irish Banking Corporation that can fend off Global predators and become a player in Europe itself. The synergies of such a merger in Ireland would be colossal. They could close a branch office in every provincial town in Ireland.
    The British have thrown merger legislation out the window to allow Lloyds take over HBOS.
    Let our banks do the same. The British and European banks could buy our smaller banks to compete against them.

  16. Longlivetherepublics,… I could not agree with you more , we need to get back to old fashioned grounded economics, and your suggestion with starting with our energy supply is simplicity it’s self. The trouble we are currently in here is America sneezes and We get the Cold !
    The present financial marketing system that we are been run under just had to fail , it functions on promises and speculation and does not create anything only paper assets , simply take a look at the playing with figures from Bank of Ireland today and what they have their land banks valued at , look around any town in Ireland today and you will see vacant commercial units and on the strength of the book value of these units the developers got even more to buy the fields beside them or the land inside the towns zones.
    So it’s a big game and we are at present going around in a circle. We have spent the last ten to fifteen years living a lie here buying over valued houses from each other , remortgaging and buying a second home and essentially living on the never never so to speak.
    While we depended on a construction industry to make it all look good ,while we continued to bring in American firms with our low tax rate for their parent companies and allowed them away with not paying great wages. But it looked good the photo opportunities.
    Now that America is really starting to hurt and their consumer is running from all industries you will see more of their firms here been pulled as they with restructuring can source cheaper plants now in east Europe with the same tax rates and yet again an even cheaper labour market.
    Unfortunately with our unimaginative leadership here ,who are afraid to take on the Bankers and Developers we are looking at a serious downturn.
    An statement my mother often said to me in my school days comes to mind, ‘A Liar always gets found out’ . With the current state of our Economy we are seeing first hand what Lies we have been spun over this ‘Great Celtic Tiger Economy’
    These Bankers should not been bailed for their greed.

  17. Lorcan Roche Kelly

    This thread seems to have moved away from discussion of David’s article, instead becoming a forum for airing ‘alternate’ views.

    So here are mine.

    I should probably preface my remarks with the proviso that even though I’m following Davy22′s and longlivetherepublic’c lead, I have very little in common with their views.

    I have felt that Friedman’s economic ideas, as implemented, have been failing for some time. Supply and demand driven free markets work well at a local level. But they start to unravel when the market becomes large enough to change the fundamentals on which it is based.

    There has to be some constituent of the market that is fixed, so that clarity can return to financial dealings. This existed with the gold-standard, and perhaps a lot of our current problems can be traced back to the collapse of Bretton-Woods in 1971.

    So why not have a new gold standard? Because we have tried it, and it failed, falling victim to the Triffin Paradox. Fixing the money supply now would guarantee an international financial collapse. The Fed’s bail-out cheques would start to bounce, as would any other CBs cheque that wasn’t backed by hard currency. Nobody, except the most ardent anarchist, wants to see us all go through what happened in Russia in 1998 when they were forced to default on their bond payments.

    If we’re not fixing currencies, we have to look at other market fundamentals. The most irritating part of the current crisis is that the system should work. Clearly it doesn’t. Currently markets suffer from a massive distortion of ordinary supply and demand fundamentals. When people buy products (I use the word in its widest possible meaning) without a view to using it, but rather with a view to profiting on reselling it, they are investing in inflation. The recently maligned short seller is just the same wolf in different clothes. Because these speculators are not consumers, the asset’s true value becomes disjointed from its market value. From this we get the bubble and bust cyclical asset markets. Big bubbles lead to big busts.

    The current market malaise is a function of the market as it exists. Efforts to save the market only ensure that we will stay in this cycle of increasingly bigger swings until we hit the bust that we can’t bail our way out of.

    My solution? Currently I’m leaning towards abandoning stock markets. Stock markets originated because companies needed to raise funds to get started, or for acquisitions. In their current form they are little more than gambling houses, a speculators playground.

    But companies will still need to raise funds, so here’s my alternative. Instead of offering stock, companies would offer a bond type instrument. This ‘bond’ would have a fixed price, e.g. $1. It would be issued at $1 and would always be a $1 liability on the company’s books. Investors would be paid a dividend on this bond if the company did well, if the company didn’t the bondholder would be the preferred creditor, but would probably still lose some or all of their investment. Any company entering the market would have to make 100% of the company equity available for purchase. As the company grows it can issue as many bonds as it can afford to pay attractive dividends on. The bondholders would have all the rights that shareholders currently do.

    This solution would serve to remove speculator driven volatility from the market. I offer it expecting, and welcoming, criticism.

    Sorry about the length of the post.

  18. JJ Tatten

    Too little too late lads.
    Ireland is staring down the barrel of a slow-mo gun whose trigger has been pulled. In the aftermath, it would be comforting to think that some clarity of thought in Govt, financial and social circles might lead to a radical overhaul of our commercial, social and political mindset; but unfortunately the cute-hoor, parochial, feck-you factor that has been lurking in the shadows during the good times, is about to re-emerge and pick over the carcass of your misfortune. The Irish establishment is, quite simply, not up to the job of building a truly ambitious, entrepreneurial, socially-inclusive, meritocratic state. We are led by politicians who are as much use as a one-legged man in an arse-kicking contest. And, as such, the average citizen will never realise their potential – within the shores of eat-your-own-Ireland.
    But, when we emigrate – we excel. The list of successful Irish people abroad is endless. So:-
    If you are young – get out.
    If you have a young family – get out.
    If you have relatives who are young, or have a young family – encourage them to get out.
    If you are poor – get out.
    If you are rich – hide from the poor or encourage them to get out.
    If your family has a history of illness – get out or don’t get sick.
    If you have a mental illness – stay where you are ‘cos you’re in Government
    If you’re not a member of a political party – get out.
    If you have ambitions for your kids – get out.
    If you’re in my garden – get out.
    If you’re a publican – turn up the heating and put more salt in the food.
    If you’re in hospital – walk towards the light.
    And – if you’re gonna give it a shot – let Christy take it.

    The remainder can run B&Bs, bookies and bars and pick us up at Dublin Airport come Christmas time – when there’s no need to be afraid.

  19. Colin

    JJ,

    I have already moved abroad. I count my blessings everyday that I’m single, have no kids, no mortgage, and no shares. We have as a people always been on the move and done well out of it in general. Its just from 1995 – 2007, we had the option to stay. Even then, plenty of our young people decided to leave for UK, Australia, the continent and God knows where else.

    There was a huge myth in operation between 1995 & 2007. What was it? It was that Ireland was the best place to live in the world. And to argue against that was deemed almost unpatriotic (the same way David McWilliams was deemed unpatriotic about “talking down the economy”).

    Few people challenged the myth. Forgetting the climate, the cost of living, state of schools, lack of proper public transport, cost of renting/maintaining mortgage, nosey people, i suppose its not that bad a place.

    The truth is Ireland became a country for young people to resent. Its the 40+ brigade who are looked after most. Even the pensioners are doing very well for doing sweet f.a. Who pays them thieir state pension? Young people do.

    “Young People of Ireland, I Love You”, do yourself a favour and leave! And don’t come back until you’re at least over 40.

  20. Johnny Dunne

    Considering the highlighted ‘risks’ with banks, any suggestions where people should put their cash (besides under the mattress!) ?

  21. paddy cullen

    BOI @ €3.65 today !!! yikes ……….

  22. Philip

    For me, the problem with David’s article is that it presents an idea which needs some more explanation.

    Why would merging 2 banks make the situation any better? Is this based on the premise that a bigger institution would have a better overall balance sheet and may be harder to impact by speculative activity? I think in terms of scale, even if we merged all our institutions we would still be a relative minnow in the international scene – so they would be hit anyway leading perhaps to a nationalisation process by the CB.

    Also, merging banks in Ireland to improve overall asset base etc is probably not going to help either. Remember it’s not a retail buying an investor bank – it’s a retail buying a retail – and they all have similar profiles and customers with no relative advantage. This sameness (dependance on developers and property assets) is the weakness we have in this country.

    I can see now the error of my ways in trying to remove the panic reactive element out of speculation by stifling communications or killing off shorters. Russia has just got a real dose of what happens if you try that trick. Nice and all as that may seem, you have to do that globally at the same time or you’re wasting time. The reality is that if there is a whiff of dodginess in your books, the markets will magnify it by a decision tree of childlike greediness.

    It’s not a bank merger we need IMHO…it’s a forced reclassification / revaluing of the asset base – a trade swap with the CB as suggested by DMcW as suggested a few weeks ago. We HAVE to fix that element of the banking system – make it more diverse or it’ll be collectively hammered and then you’ll soon find your deposits under the BoA or some Arab bank. And then the developers will find they have no where to run…

  23. Ire-in-Exile

    A bank is a curious conundrum in itself- and the banking system in the western World needs immediate scrutiny and reassessment..
    A bank is a business entirely geared towards reaping massive profit for the benefit of private individuals only.
    When the heads of these banks plummet the world into such current disaster, they are not prosecuted nor detained but are awarded massive settlements?
    The businesses which they-through negligence, mismanagement, incompetence (and corruption) have allowed to disintegrate are then “saved” by the government who support them- with taxpayers money!
    The ordinary citizen thus suffers both ends.
    There is something very wrong.
    Grow up? Banks will always behave like babies wen they are treated as babies.
    Time to start implementing very different rules….It is the general public that needs to grow up.

  24. MK

    Lorcan Roche Kelly > My solution? Currently I’m leaning towards abandoning stock markets. Instead of offering stock, companies would offer a bond type instrument.

    I think there is some validity that the system that stock markets/exchanges provide have in and amongst themselves grown out of all proportion of what their original intention was meant to be. There are more people/money buying and selling shares in a company than most companies do within their business. Imagine if a corner shop was likewise, with a queue of 1 person inside buying 1 euro worth of goods and a queue of 10 or more people outside buying shares in the said shop. Its ludicrous. Yet that is the system we have in the traded shares. And all this moving of money is just that, movement of money. It doesnt generate or create anything. Stock markets have been problematic before (south sea, 1930′s, dot.com) and may have assisted in creating a house of cards which perceptually looked strong but which may turn out to be a false facade.

    Philip > It’s not a bank merger we need IMHO … it’s a forced reclassification

    I agree that a bank merger doesnt make one iota of a difference, as -2 + -3 = -5. Putting them together doesnt make a difference. And a bank that is at -2, why would they merge with one that is -3. It doesnt make sense. Sure, it may tay the inevitable a little longer but it wont change the fundamentals. All that banks can do is cut costs with a merger but its not operational costs which are stinging banks. Its dropping asset values on loans, lack of movement in those assets and loans hence going bad. And these are just the symptoms of the actual case, which is the credit bubble/frenzy.

    A forced reclassification would just create a bankruptcy and a firesale of those assets ala Lehman. As that is what Lehman were forced to do when they ran out of cash.

    Speaking of Lehman, I just had a peek at Goldman Sachs, the supposedly ‘good’ bank in the US, and its figures are very similar structurally to Lehman and hence equally as frightening. I have a feeling that many of these banks were playing the same game, they all made lots of money off of it in 2005, 2006 2007. Yet, they may have all like lemmings fallen into the same trap when the ar.se goes out of the property market.

    Looking at Goldman Sachs I see (figures in billions):
    attribute 2005 2006 2007
    revenues: 43 69 87
    interest: 18 31 41
    profits: 5 9 11
    debt: 570 650 850
    cash: 61 87 131

    In recent quarters I see they have reduced their debt down to 700 and then to about 600 (all estimates as did not read their SEC filings in detail), but their corresponding assets have been reduced in value by 200b in that time. So assets are falling quicker than their debt. This is what happened at Lehman. And of course the assest are illiquid. GS seem to be trying to work it off though, but it remains to be seen if they will. They had 98 b in cash as of May. Their stock market value as of yesterday is 45 b, which is probably less than their cash now.

    And this is the ‘darling’ bank. The one that was supposed to be on the right side of a lot of trades while the others bet the wrong way. GS wont bo belly up tomorrow, but their trajectory is the same as that of Lehman.

    I didnt scrutinze JPMorgans published figures (and remember, these are the accountants figures which in many cases have not marked down the asset prices to their actual market firesale value) yet, but feel free to do so. I would be surprsed if they are much different structurally.

    A quick browse of Bank of America’s books and they seem to be better. Less interest payable per revenue amount, less debt, more cash. Maybe they are the darling.

    So, are all the main wall street firms gonna go bust? Their books tell a story and may be a good indicator. And frighteningly, things are looking that many perhaps will. Those busts may not affect our banks here in wee Ireland, but they could affect the US economy and hence our MNC-part of our economy. Dell aint gonna hang around if push comes to shove.

    MK

  25. Malcolm McClure

    David said: “So will an Irish bank go under? If Lehman Brothers can go bust and Merrill Lynch can be swallowed up, there is little doubt this can happen here.”
    For twenty years or more small and mid-size listed firms in America have complained to the SEC and NSCC that the failure to require delivery of securities against short position settlements has promoted a culture of unrestrained speculative short selling. Some firms have observed over 30 times their market capitalisation being shorted by a handful of hedge funds. There is no penalty for a settlement failure imposed by NSCC or DTCC and registrars are not entitled to see who holds the short positions so there is neither public nor private recourse for abuse.
    The latest falls in HBOS plummeting shares were driven by speculators shorting the market and the fall in Irish bank shares is also driven by hedge funds etc. selling shares they don’t own. In the IT age it is a simple matter to regulate the short seller by requiring that all sales are irrevocable and must be backed by holder’s name and a share certificate number. As I’ve said in previous posts transparency in all deals is the key to a fair market place. Dark Liquidity Pools should be abolished forthwith.
    Turning to MK’s point about “Good” banks’ solvency. I have the impression that this is in inverse proportion to their exposure to CDOs and CDSs as underwriters, trustees and investment advisors, with possibly incestuous repercussions. Again, regulation should make the extent of this involvement completely transparent on a monthly (not quarterly) balance sheet.

  26. Maureen

    Is Northern Rock now safe for our Savings? Backed by the UK Government.
    or
    Would the credit union be safe.

  27. Philip

    Malcolm McClure, the snag with these liquidity pools is that they are global in nature. So just because you clean it up and make it transparent in one place, does not stop the problem.

    But then again, this could be an opportunity for reputation building where if our CB insisted that all transactions had to be transparent, we could suddenly find ourselves being the most trusted comms hub…word would spread…only trade here as this is where the volatility could be calmed – all trades are guaranteed cleared prior to a security resell. This could spread…

    Thoughts?

  28. Malcolm McClure

    Philip: It would be quite easy to abolish liquidity pools if the identity (code number) of each successive owner of each share was recorded in real time by the issuing company registrar. These owner codes would be issued by each recognized stock exchange and only transparent transactions through the recognized exchange would be legally valid. The exchange would automatically pass new ownership details back to the issuing company. This method would eliminate both liquidity pools and short selling.

  29. Paul

    If Bank of Ireland and AIB were to merge, how many people would lose their jobs ?, and what would happen to BOI or AIB shares ?.

  30. Garry

    +1 Malcom, Changing the market back to being a stock exchange where people exchange shares in a company for money, novel concept!. With computers, each share can be digitized and ownership tracked/recorded, and the trade can be recorded in milliseconds. However forcing all trades to be recorded and settled by actual exchanging stuff, stops all the paper nonsense which ultimately relies on not having to deliver securities upfront.

    To sell a share you have to prove ownership of that particular number of shares in the transaction and the share ownership transfer is managed by the exchange. When buying shares you actually end up with the certificates. Nobody else but you can sell or use them without your permission.

    An exchange has more responsibilities and possibilities, basically instead of tracking numbers they need to track each individual share and if someone is selling a share they don’t own at that point in time, they are trading in stolen goods. Possibilities …do they publish all transactions including buyer/seller details, how quickly they will process the trade, even possibly limiting the total number of trades of a particular share or slowing suspicious trades, how they interface with the company who issues the shares, all provide ways to ensure transparency.

    Its not stopping funds etc …. Banks could set up funds/trackers even trading platforms/indexes like some of the web trading/gambling outfits, Hell, they could set up on Second Life, but in order to trade with the stock of real listed companies, they need to man up every time. This would help to insulate companies from games. Shorters have a conundrum, how to make money on something devaluing while being forced to actually own it before they sell it.

  31. David said:
    “We are now in a bad-debt cycle, where a credit crunch is exposing reckless loans that will never be paid back. Make no mistake, millions of euros in loans will never be honoured.”
    Surely you mean “hundreds of millions”?

  32. By the way, “Maureen” above, should have no more than 20,000 Euros in any one bank at present. If she is lucky enough to have more.. spread it around.In today´s climate only a fool has all their eggs in one basket.
    (PS I love the cartoon at the top.!)

  33. Lorcan Roche Kelly

    MK > I didnt scrutinze JPMorgans published figures.

    I presume you mean MorganStanley. If so, Citic, the Chinese soverign wealth fund have been looking. They are (maybe) increasing their stake in the bank from 10% to 49.9%.

    > So, are all the main wall street firms gonna go bust?

    They are going to be completely changed, even of they do survive. There’s even a chance that some of them might actually return to being investment banks, rather than hedge funds marquerading as banks.

    Philip > trade here as this is where the volatility could be calmed.

    I like this idea, but like most of the ones put forward here, implementing it would require a major change of mindset among the financial powers-that-be.

    Just to show that all this really is nothing new, the Venetian government outlawed spreading rumors intended to lower the price of government funds. In 1351. Six hundred and fifty years later, not much has changed.

  34. Malcolm McClure

    Garry: My suggestion above could also provide reassurance for investors in Unit Trusts/Mutual Funds that the managers actually possessed the full spread of shares that purported to form the foundation of their funds, and proof that those, too were not just another Ponzi scheme.

  35. Woodsey

    The banks, the banks, the banks? Ah lads, sure they’re all great little institutions. Why else would we encourage our employers to transfer all our money into their safekeeping. They’re grand little private institutions and don’t they send us out the odd statement telling us what they think they’re holding for us? And don’t we believe them? So we spend all this virtual cash and, at the end of the month, our employers send them more. And the banks charge us for keeping it all and we pay them. So they invest 90% of all they get for their own benefit and, ‘Shush!’, they don’t tell a soul. Then they lose out on the investments and close overnight without so much as a note to say, ‘Thanks for all the fish!’? And these are the boys we’re thinking of bailing out with our cash because they’ve lost all our cash? Ah come on now lads, even if that was a good idea, sure we’ve no cash left to bail them. Ah the banks, the banks, the banks! Sure they’re laughing all the way home to them!

  36. Peter Atkinson

    Rang BOI about deposits today.A lovely charming young girl came back to me about 4.30pm .She spoke solid on the BOI mantra for ten minutes and then basically dried up.I asked what I should do and she said” I don’t know really”.Says it all .Anybody know of six banks still in existence that I could quickly open up deposit accounts with.There used to be a lovely bank in sleepy town of Trumpton but its probably gone too.

  37. MK

    Lorcan Roche Kelly > I presume you mean MorganStanley.

    No, I did mean JPMorganChase, as I’m checking the books of the ‘good’ banks.

    MorganStanley looks like it may be a ‘bad’ bank! Its down 20% today and a brief scan of its balance sheet indicates to me that it is potentially a bad one. It has played in the credit game but it has been unwinding its positions from long investments to short term ones, and reducing its debt and consequential interest payments. Its also been burning some of its cash. But the devil is in the detail, it all depends on what types of short term inestments they bought and how well they are doing. Its looking for a buyer which is indicative. Anyone, anywhere. As is Washiongton Mutual, Wachovia and no doubt others. One type of player which seems absent from picking up these ‘bargains’, and thats the sovereign wealth funds and the petrodollar-rich ones as well!?! There absence given their previous willingness to get involved such as with Citigroup perhaps is telling. Once bitten, twice shy.

    I did get around to checking JPMorganChase – they are healthy relatively (and better than Goldman Sachs). They have a lot of cash, their debt levels and interest levels are very manageable. I looked at quarters too, although I have no idea if the recent quarter even included Bear Stearns figures, although my understanding is that the net cost to them for taking on BS was a mere 1 billion (20 – 19) so I presume it does. They look to be a ‘good’ bank.

    BOI and AIB may be as well. I will need to trawl through their accounts to determine that though.

    > They are going to be completely changed, even of they do survive. There’s even a chance that some of them might actually return to being investment banks, rather than hedge funds marquerading as banks.

    Well, thats a coincidebce, when I looked at the balance sheets etc over the last 3 years for some of these ‘banks’, that’s exactly what I thought of – hedge funds. These banks were more actively trading than doing much anything else. It balooned their revenues and profits, no doubt their bonuses as well, the latter is a certainty. But it was a ponzi game which is coming home to roost now to those that dabbled too much. And there are several of those.

    Some will go belly up, some will get through. Using the alochol analogy again, there’s some with alcoholic poisoning, and there’s the other end of the spectrum, those with just a slight headache after a few glasses of wine. It all depends on how much they played in this credit frenzy.

    MK

  38. Lorcan Roche Kelly

    MK > BOI and AIB may be as well. I will need to trawl through their accounts to determine that though.

    I’d better say this very quietly.

    I bought Bank of Ireland today.

  39. Garry

    I think your idea is correct Malcolm, Forcing actual transfer of securities on every settlement makes it harder to game the system. And complete visibility & transparency solves a lot of problems, whether its reassurance on what someone actually owns, what a shareholder or fund is up to, even rouge traders don’t have anywhere to hide.

    It is all possible with current technology, maybe not with current mindsets, they were doing OK from the way it is now.

    Meanwhile, back at the ranch, the Irish bank bailout has started, though its dressed up as helping house buyers.

  40. Furrylugs

    “Is Northern Rock now safe for our Savings? Backed by the UK Government.
    or
    Would the credit union be safe.”

    “By the way, “Maureen” above, should have no more than 20,000 Euros in any one bank at present. If she is lucky enough to have more.. spread it around.In today´s climate only a fool has all their eggs in one basket.”

    V True but the Central pot to honour the 20k maximum safety net for savers in Ireland is only 550m deep or in plain English, if more than about 20,000 depositors appear………….the pot runs dry. Bit of a hole in the net.

    I think we should re-read the DMcW article about Donkeys and invest in the old “BogWagon” since thats where we’re all headed.
    BTW……………The Chinese via CIC will buy out a controling stake in Morgan Stanley within 24hrs thus causing ructions in the States.

    It’s looking like the bulk of the worlds liquidity is now non-christian (Singapore, Bejing etc). A good thing. It’ll make it tougher to fund wars…………….but I digress.

    Anyone need a builder?????????????????

  41. William Winters

    Roche Kelly, so you bought BOI shares. If you are in for the long term (5 years) I hope your investment works out for you. Near term, I predict short selling is going to decimate Irish banks. “The trend is your friend”. Don’t swim against the tide, flow with it. These hedge funds are massive and they will drive shares lower. Jump on and enjoy the ride!

  42. Lorcan Roche Kelly

    William. I’m treating my recent purchase (only a small amount, but enough to be interesting) the same way as I treat my exploration stocks. High risk, but never dull.

    I know BOI is not yet a penny share, but I do believe it to be under-valued at the price I paid (€3.70). Whether I’m proved right over the coming few days/months/years remains to be seen.

    I also believe that BOI or AIB will not be allowed to fail, much as I feel that they should sink or swim based on their own actions. Most of my posts here are based on what I think should happen, I spend my money based on what I think will happen. I am quite prepared to be wrong on both counts.

    Do your own due dilligence.

    Lorcan

  43. For a while I believed most of the subscribers to this site were educated and informed , yet after reading down here I see a few posts bragging about buying Bank Stocks , how dumb are you people ? Every clued in financial consultant in America are telling clients to get out of the Stock market Now !
    Our Banks are in a lot more trouble than they are actually telling us at the moment with the melt down presently happening in the USA with investment and merchant banks been shown how strapped they are now, their fourth biggest bank Wachovia are looking also for help. If your going to buy anything now buy Gold but investing into the banking establishment which has after all landed us into this economic downturn is foolish folly.

  44. William Winters

    Dow Jones up 600 points since my last post. Closes up 410 on day! L.R.K. you are in for a good day tomorrow! Wasn’t try to be smart with you. (your due dilligence remark! lol) Just offer a different perspective.

  45. Garry

    Ah Brendan, to be fair you pay your money and take your chances…. and sure money is made on differences of opinion as to the value of something…

    Fair play Lorcan, a brave move, but with the UK banning short selling of financial stocks, maybe our brave boys will do likewise for ya!!!

  46. Lorcan Roche Kelly

    Brendan > If your going to buy anything now buy Gold but investing into the banking establishment which has after all landed us into this economic downturn is foolish folly.

    Perhaps it is foolish folly, time will tell. I disagree with your assertion that I should buy gold. Gold as been as volitile as everything else. It has had a $140 swing in the past 36 hours. And it is a $ traded commodity, and I’d rather not expose myself too much to $s at the moment. Gold is not the store of wealth it used to be. Even the survivalists at kitco.com are starting to see that.

    > I see a few posts bragging about buying Bank Stocks

    I wasn’t bragging, and I’m sorry if it came across as such. But I did feel it only fair of me to reveal that I had taken a position in one of the banks, considering the theme of this thread. I would be a little hypocritical if I hadn’t.

    William > Wasn’t try to be smart with you.

    Nor I with you. The ‘Do your own due dilligence’ remark merely means, ‘this is what I’m doing’. It is not advice, make you’re own mind up.

    > Just offer a different perspective.

    And wouldn’t life be really boring if we all thought the same way all the time?

  47. @ Lorcan no need to apologize just go and do a few sums Bank of Ireland shares at start of year were just over €18 , now into the third quarter their shares at just over €3 they have been ‘investing’ into the commercial and domestic property markets when they had this share value, now they are cutting their return to share holders and are still putting forward unrealistic figures on what their stake in property actual is, but of course it is the dynamics of free will at play that you like anyone else has the right to speculate.
    @ Garry and differences of opinion and ‘our brave boys’ well considering Biffo is now blaming our downturn due to us voting No to Lisbon , I wouldn’t hold your breath in seeing them making any moves as been honest they seem to be living on another planet and they still will try to help their banker friends in the up coming budget , God Help Us !

  48. Finbarr

    It has me hiding under the duvet – What could be seen as tipping points in all of this thats what people need to know. I expect to look out the window and see people running for the hills, cash in tow.

    Fear and Greed are what drives the markets and among all the stuff people dont understand, the greed will kick back in. There may be less banks at the end of it all, with the ones left standing in a position to exploit customers to the fullest as they will have devoured their foe. Customers will end up picking up the tab as whatever banks are left will be regulated up to their Merc badges as a consequence.

    A Catalyst is whats needed. I am guessing the US election may do the trick.

    As for the safety of your money – If you have so much that it’s a worry then buy prize bonds!!

  49. VincentH

    I see you have had the decorators in. Don’t you think in the current climate that you might have held off on grigging people with your non-homemade web design. Otherwise, there is not a lot of point putting huge comments, best to sit back and view the fireworks.

  50. MK

    Lorcan Roche Kelly > I’d better say this very quietly. I bought Bank of Ireland today. (3.70)

    Well, you have certainly done well, as its now trading at 5.30 (no make that 5.16, oh wait 5.05)! In heavy volume this morning BIR.IR even went as high as 7.00.

    When to get in and ‘bottom fish’ like this depends on the appetitie of the investor. It is certainly only to be done with money that can be risked. A few weeks back in July when BOI dropped to 4.41, which then seemed like an impossibly low value, I thought it was a good time to buy and a guy I advised got in at 5.05. He was happy for a while as it rose above 6.00 but less happy in recent days as you can imagine. However, when you are bottom fishing, the strategy is that you must hold for the mid term at least so that the negativity and toxicity plays itself out of the market and more accurate valuations can result and hopefully, if a ‘good bank’, BOI will soar back again most likely towards the 10 level.

    I was re-reading some old advisories back in 2007 when BOI was up in the 14′s and of course all the analysts from the usual local suspects here had it marked as a Buy. Analysts are wrong 50% of the time, at least!

    Who knows what will happen in the forthcoming months with the financials, whether the storm will abate or whether this was just a prelude. A mega-storm is always possible and sentiment can drive it down further than it probably should go.

    MK

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