Hobo Sapiens wrote:
What is the basis for your other claim that "cost of nationalisation will be more then 90 Bn"?
Well, it's not an impossible figure. It may not be the costs of the banks themselves, but the knock-on cost to certain financial service intermediaries - are they systemic too?
I really don't like nationalisation as an option. I don't even like recapitalising as an option, except with senior debt that outranks all other debt in the event of a wind-down. So my current favourite idea is we recapitalise the banks as required with NAMA bonds (NAMA having been set up to manage Anglo's bad loans only) swapping them for senior debt in the banks at matching coupon and terms, or slightly in favour of the state. So NAMA bonds pay x, bank bonds pay x+y (to avoid anti-competition issues).
If other banks operating in the country want sovereign capital in this manner, we give it to them on the same terms.
As part of this process, the banks must do private market cash calls to rebuild equity capital. We, as in the state, stay away from this. We don't benefit if they survive, we don't lose if they go bust (as we are senior to everyone else and we would only need to supply something of the order of 40-50% of assets over time).
The banks are encouraged to set up SPVs to park their 'hard-to-value' loans in. They can keep them marked at whatever they like. They can bust developers if they like. But they must deleverage going forward, like.
But aren't we still in the same state? Who funds the NAMA bonds? If we swap NAMA bonds for bank debt, how does that help the banks? They swap the bonds for ECB cash? (And surely the ECB calls a halt to that insane scheme straight after the Lisbon 'neverendum'?)
If the venture fails (i.e., the banks eventually collapse), we can only hope to recover some fraction of those bonds from the underlying assets (unless the bubble reinflates, of course, in which case we're equally ruined).
If there was any money to be made from your or any alternative to NAMA, surely an investment fund or similar would swoop in already?
(Forgive me for not fully understanding your proposal - this high-finance stuff is mind-bending at times! However, I might need to know what to say to my children in 2019 when they ask why their PAYE liabilities are so extortionate.)
EDIT to add: Your remark that "as part of this process, the banks must do private market cash calls to rebuild equity capital" is, I hesitate to say, fanciful. Who, apart from our Government, would be silly enough to sink equity capital into an Irish bank?